For any business, financial planning would not be complete with forecasting and budgeting. While the two terms may seem very similar, financial forecasting and budget setting serve different purposes.
However, when accomplished together, you can expect top-notch results for your business.
In this article, we’re going to go into the differences between the two and how ERP systems drive the financial planning process. Let’s get started.
What is budgeting?
We’ll kick it off with budgeting. Budgeting or budget-setting is when a business roughly calculates their potential costs and profits over a given time period. It includes different kinds of expenses – both fixed and variable – as well as how to allocate business funds to these needs.
Budgets provide the parameters of success for your business through targets or key performance indicators.
What is financial forecasting?
So, what about financial forecasting? There’s also calculation involved here, but this time you’ll have to factor in historical business data and the current market information and industry trends.
When forecasting, businesses review current and past transactions and study how the market is performing to gain insights that will help in preparing better budgets.
What are the key differences between the two?
To further clarify the comparison, this infographic from EDUCBA might help you understand the key differences between budgeting and financial forecasting.
How does budgeting and financial forecasting come together?
On your organisations’ journey, your budget is the map with the path to success while the forecast is like a compass – a tool that will direct you and help you stay on track as you navigate through the business landscape.
Budgeting also allows you to plan for what’s to come and set the goals that you would like to achieve while forecasting allows you to look into the company’s financial future and estimate if you will hit these targets.
How does an ERP system help this process?
In our previous article on sales forecasting, we discussed that the ERP system is the platform that holds all your historical transactional data.
Sales records are not only a starting point for forecasting, but are also crucial to budgeting. With an ERP system, businesses can retrieve the previous year’s budget and performance and make adjustments based on findings from forecasts.
The financial modules within the system help generate reports crucial to the budgeting process. These reports include Profit and Loss statements, Accounts Payable, Accounts Receivable, Cash Flow, and much more.
On top of this, there are plenty of third-party budgeting software that can be seamlessly connected to ERP systems to make the process more efficient.
This solution also provides custom Velixo functions, specifically added to Excel for MYOB Advanced users. By optimizing these features, businesses can make more sophisticated budgeting and forecasting models.
Budgeting and Financial Forecasting with an ERP system
Still budgeting and forecasting without an ERP system? Maybe it’s time for a change. Consult with our experts to see which ERP solution is best for your business and financial planning.
For MYOB Advanced support, MYOB Exo support, or Sybiz Vision support, you may also contact our team to address your concerns.