A budget projection is an estimate of a company’s anticipated revenues and expenses for the next 12 months. It can also be used as a basis for determining future budget decisions, revisions and adjustments when necessary. A true business’s potential is revealed by an accurate budget, and to arrive at there, a budget projection is required.Budget projections are useful as they aid in the preparation of a business plan, allows companies to compare the projected budget against actual financials which would in turn allow management to make informed decisions in terms of planning of major developments and exploring of new and practical strategies when coming out with a new budget for the new year. It also allows the spotting of inefficiencies, therefore allowing companies spot budget items that have overshot its intended budget and evaluate the reasons behind why.A budget projection is normally done by using a spreadsheet, which is basically a computer application that simulates a paper, accounting worksheet which displays multiple cells which together make up a grid consisting of rows and columns.
For each cell, you are able to type in the desired numbers or text. This makes budgeting simpler compared to the conventional pen and paper. An example of a spreadsheet application is Microsoft Excel. Firstly, to begin budget projection, it is recommended to start with the previous year’s financials.Meaning, compare your projected budget with the previous year’s expenditures. Is it practical? Does it look similar? Basically the previous year’s financial provides a guideline on how you should go about doing this year’s projected budget. However, if this is the first time a company is doing budget projection, the company should obtain some existing financials from similarly sized business in their respective industries to get an overlook of what a budget would look like in that particular industry.
Secondly, the usage of industry references or standards. They provide gauges for measuring each budget item against the industry’s average. Essentially, benchmarks. It helps prevent companies from stepping out of the ‘safe boundary’, meaning preventing expenses from stepping out of the line, which may result in catastrophic effects. This would allow companies to make a realistic estimation for each budget item. Thirdly, considerations of new initiatives and business conditions must be taken when planning the budget projection.Business conditions such as inflation, technological advancements and raw materials may have an impact on the year’s expenses, revenues and of course profits so it is essential to take all this into consideration when planning.
Concluding, budget projection solely relies on estimations, which may or may not be accurate in the end. However, if your estimations are based on factual figures, and not just being unrealistic, and if the above steps are followed, a budget projection would do good for your business.