Budgets & Forecasts
Corporate budgets are management’s commitments to the shareholders and as such this annual exercise needs to be carried out diligently and reviewed with all seriousness by the BOD on behalf of the shareholders. Budgeting has to be a very detailed exercise and should start a few months before the advent of the new financial year.
Budgeting begins by establishing assumptions for the next year. Formulating key assumptions are the foundation of any budget exercise and must therefore be reviewed and approved at the highest level of management. Assumptions are based on the analysis of future economic outlook of the market, industry, or sector in which the company would be operating. Based on the foregoing, the assumptions are formulated about the trends in revenue and costs. Specific factors affecting potential expenses are addressed and monitored.
The budget document outlines the standards and procedures used to develop it, including the assumptions about the markets, key relationships with vendors and assumptions the company’s own assumptions while estimating revenues and costs in line with the organization’s vision, strategies and resources.