The forecast is a company’s tight budget. The purpose of preparing a business forecast is to ensure that the objectives established in the initial budget are met.
The budget, also called the budget , tracks a company’s sales, costs, and expenses estimates for a specified period of time, usually one year.
Every month, the company performs an analysis of its accounting, comparing what it predicted for each of the elements of its budget with the values calculated in practice.
Based on this analysis, an adjusted review is performed, the prognosis . In it, the final objectives set in the initial budget are maintained. However, the estimated monthly values will be adjusted according to what has actually been determined so far, so that the objectives of the company can be achieved .
The budget and the prognosis is one of the most popular methods of enterprise budget.
If the company estimated to earn $ 120,000 in the year with a certain product, it would need to sell an average of $ 10,000 per month to achieve this goal. However, if after two months of running the budget you discover that you only managed to earn $ 10,000 from these sales ($ 5,000 per month), you will need to make adjustments to reach the $ 120,000 set as your goal for the year.
For this, the company will need to make a forecast , considering that $ 110 thousand is still missing and that it now only has ten months to reach the goal. This means that, to meet the budget objective, a profit of USD $ 11,000 per month will be necessary until the end of the year. The review assumes that efforts to sell this product should increase in the coming months.
In addition to sales, the forecast can review other budget items, such as cost and expense estimates. In these examples, if the company is spending more than expected, the forecast spreadsheet can help you verify where cuts need to be made to avoid blowing up the budget .