Budgeting is one of the most important procedures in businesses. Budgeting also helps forecast future sales figures or the cash flow of the company during a certain period of time. It shows up a financial representation of a company’s strategy that acts as a determinant of other business decisions. Decisions taken are vital due to their financial implications for years to come.
Budgets and Cash Flow Forecasts
A budget is a plan, which is set out in numbers. It sets out figures that an organization hopes to achieve in the future. For example, a company will create budgets for:
Budgeted production figures
Budgeted costs, etc.
Cash Flow Forecast
A Cash Flow Forecast is an estimate of future figures based on experience. You can make forecasts about all sorts of events, e.g. the weather, the likely result of a sports team, etc. In business, you can forecast future sales figures, or the likely cash flow into and out of a business. A business often prepares a Cash Flow Forecast showing the money likely to flow into and out of its bank account in a given period.
Benefits of Budgeting
Budgets are a financial representation of an organization’s strategy. The process of budgeting requires managers to plan ahead, for example, to identify the resources required to meet targets. This is particularly important in the insurance industry due to the complex nature of the products offered. Insurance generally addresses medium- and long-term needs of customers. Decisions taken now are likely to have financial implications for many years to come.
Quality is at the heart of our customer-appeal. However, our appeal is also about innovation and about being an industry leader, both in our operations and when responding quickly to emerging risks and opportunities. This allows PACC to deliver what matters, when it matters.
The budgeting process is a source of competitive advantage. Effective budgeting requires careful research and realistic planning as well as collaboration. It can help to set high objectives or move the business into new territory. The level of ‘stretch’ or challenge in a budget will depend on an organization’s culture and ambition. Some businesses may be prepared to accept a higher risk profile for a better return. This in turn will depend on the influence of key stakeholders, such as shareholders.
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