Small Business Budgeting and Forecasting in 2022
As we keep our collective sights set on a year of growth, it's important that businesses across Canada take time to assess their budgeting and forecasting methods and ensure development is happening on solid footing.
As is the case with most seemingly-unimportant aspects of business management, owners and executive teams will often rely on gut instinct and guesswork for the sake of budgeting – but this can often lead to financial disaster. Forecasting will help your team better predict what lies ahead, and ensure that the business is prepared for bumps in the road. If the last 2-years have shown us anything, by the way, it's that there are going to be bumps in the road.
In this article, we'll explore the ins and outs of small business budgeting and forecasting in 2022, including the state of technology, preparing a budget and forecast of your own, and knowing when to call in expert support.
Let's get started!
The state of small business budgeting and forecasting
Small business budgeting and forecasting have changed a lot in recent years. Thanks to advances in technology, there are more tools and resources available than ever before to help teams better understand their finances. In addition, the global pandemic forced many business owners to take a closer look at their budgeting and forecasting methods for the sake of survival, opening up a previously dark realm of data for decision-making purposes.
Through this transition towards clarity via data, a series of benefits have presented themselves. First, small businesses now have an efficient, effective way of understanding their financial situation. This includes knowing how much money they have moving in and out, as well as upcoming expenses that need to be considered moving forward. From new equipment to expansion plans, it's possible to assess health pre and post-purchase, ensuring that sustainable operations are always at the forefront.
With this wonderfully clear picture of current financials, small businesses can begin to develop budgeting and forecasting models. These models should be tailored to specific business needs – there is unfortunately no "one size fits all" approach that can consider all of the nuances of any operation. With the help of new financial technology and cloud accounting software, though, preparing these small business budgets – and obtaining actional information from them in a timely manner – has never been easier.
How to prepare a small business budget for 2022
Small business owners who want to prepare a budget and forecasting model need to start by considering the nature of their industry. The size of your company, it’s goals and aspirations, and other factors will determine what type of budgeting and forecasting models are necessary for your team moving forward.
The goal is always to develop a clear picture of current financials so that they may be projected into the future. To prepare a usable budget and forecast of your own, you'll want to start with the following items:
- Build a foundation using your historical financial data – this will give you a solid understanding of where you've been and where you may be going.
- Understand your company's current spending patterns – this will allow you to spot areas needing attention, and accurately forecast spending moving forward.
- Make assumptions about future sales and revenue – Use past data in combination with growth and sales targets to estimate what the future will look like on the revenue and profit front.
To learn more about the specifics of a business budget, you can check out our article on the topic.
Once you have a general understanding of where your business is headed using these measures, it's important to create realistic goals that you can track over time. This will ensure that your budget and forecasting models are accurate and effective, and will hold you accountable as you continue to review and revise over the coming years.
How to select business budgeting and forecasting support
In reality, small and medium-sized businesses will often need a little extra help when it comes to budgeting and forecasting. This is especially true for companies that are expanding quickly or have complex financials which may not be easily understood without expert assistance.
In these cases, seeking out the services of a CFO – either internal or external – can be incredibly beneficial. A CFO can work with your business to develop a budget and forecasting model that is specific to your needs, as well as help you track progress and revise goals when necessary.
When it comes time to choose the right financial support for your business, be sure to ask the following questions:
- What experience do they have with small businesses?
- How flexible are they when it comes to working with different budgets and forecasting models?
- Can they provide real-time support, as well as guidance for long-term financial planning?
- What is your budget like for CFO services? (If it's not massive, you'll want to consider the cost-effective support of an outsourced CFO firm like ParallelCFO.)
If you can find a CFO – either internal or external – that is willing to work with your small business on an individualized level, you'll be supported through success in the years ahead. They will be able to provide guidance when it’s needed most, and free up your team's attention for doing what matters most – managing the business.
To learn more about how our team at ParallelCFO has been helping small and medium-sized businesses around Canada with their budgeting and forecasting needs, contact us today.