Financial Forecasting Services
in the Philippines
Benefits Of Financial Forecasts, Planning
and Budgeting Services
The Short Term
The Long Term
Why Does Your PH Business Need Budgeting and Financial Forecasting Services?
Understanding Financial Planning - Budgets and Forecasts
When it comes to the benefits of budgeting and financial forecasting, there are some key differences that business founders, owners and managers need to understand from the outset. While budgeting might generally deal with more day-to-day business objectives and forecasting might deal with higher level strategic matters, both financial activities can be instrumental in helping a business to achieve real sustainable growth.
In short, budgets generally include estimates around income and expenses, a forward looking balance sheet outlining likely assets and liabilities and a cash flow budget. It is an estimate of what management believes the company can achieve financially during the budgeted period. It is common for budgets to cover a time period of a year or less.
At the end of the budgeted period or, perhaps, at regular intervals during the budgeted period, management should ensure to perform a review to understand if actual operations and activities are in line with the budget. If the budget is misaligned in any significant way, management must act quickly to understand why and take action.
A financial forecast, however, is generally utilised to anticipate the overall financial health or financial status of a company at a point in time in the future. A forecast will generally cover a longer term period of greater than one year. Management will develop and complete forecasts by relying on both historical financial data and current financial data relevant to ongoing business activity. This data is used to identify and understand what direction a company is heading towards from a financial position perspective. headed. A forecast will also take into account new business strategies that are likely to have implications for the finances of the business.
Cashflow Management Services
Cash flow budgets can provide valuable information for a company by helping to identify where there might be future cash shortages, or indeed, cash surpluses and when these shortages or surpluses are likely to arise. With this kind of information in hand, a company’s management team can move proactively to deal with these kind of situations in advance!
For example, upon identifying fluctuations in the cashflow budget, a company might decide to obtain a business loan for “down” months, seek to negotiate terms with vendors or delay certain strategic projects until cashflow is looking more positive. On the flip side, a company might identify periods of additional cash reserves and opt to move forward with business initiatives, plan strategic investments or simply, retain the cash for a rainy day.
A financial forecast can also guide management to take action, in advance, where situations are likely to arise that might have serious and negative implications on cashflow. With such information, a company can guard against financial risks that would otherwise impact them if it had not been for their financial forecasting activities. Not to mention, that is just good business practice to have financial planning in place and ensure that the cashflow of the business is constantly being monitored and measured.
Cashflow management is an essential part of running any business. It is one of the most important financial activities that a business can perform. It should be a continuous process – not something that happens every so often! A cashflow management service will put in place robust processes and controls to ensure that cashflow management is always being conducted!
Financial Risk Management
Remember, the type of financial risks that a business can potentially face will differ depending on the industry or business model of each company. By preparing and reviewing budgets on a regular periodic basis, a company can identify the financial implications of undertaking a proposed business strategy or, in fact, any type of business activity. Management can identify potential weaknesses or strengths of a business initiative and, in particular, understand where the risks might lie!
If for example, a company intends to commence a new strategy, it should understand, in advance, if the business is actually financially prepared to face the potential risks that can arise from such activity. To help with this, management can prepare a budget that identifies the potential income and likely expenses during the period in question. The information obtained from the budget can then be used to mitigate the financial risks by identifying what area and when such risks might arise.
A financial forecast will also help, although, on a more long-term basis. A financial forecast can help predict, on an ongoing basis, which risks are likely to arise and what the specific reasons are for such risks arising. Such “predictions” will be based on present and historical financial data. Management can input then update the financial forecasts with any changes that occur to understand if the business will have enough working capital to cover business activity in the near future.
Financial budgets and financial forecasts are excellent tools that can be utilized by companies in the Philippines during the financial planning process. Importantly, these financial tools can also be used by businesses to measure performance and success in meeting business goals and objectives.
Budgets can be useful to help monitor and measure any differences or discrepancies between a company’s actual financial performance (income, expenses, etc) and the budgeted or estimated financial performance identified at the beginning of the budgeted period.
Simply, a budget created at the beginning of a period can be reviewed during or at the end of the period to understand if the business is actually hitting its day-to-day objectives. It can also help management to identify which expenses or cost centres need to be monitored more closely or which revenue sources must be optimized. As mentioned, the budgeting process relies on expectations and estimates identified from information that is freely available at the beginning of the budgeting period.
Financial forecasts, however, can take new information into account when considering business performance. Forecasts will be updated, from time to time depending on the business model, to give management a clearer understanding of the company’s financial status at any given point in time.