Budget Forecasting: Four Ways to Gaze into Your Profitable Future

For a thousand years, the power players of ancient Greece consulted the Oracle of Delphi before devising strategies and making important decisions in politics and business.

As a contemporary government contractor, you lack such privileged access to Apollo’s soothsayer. But you can take advantage of an effective process that works with your existing information and reporting to shape a more competitive future. That process is budget forecasting.

An annual financial forecast model helps take the anxiety and uncertainty out of many aspects of running your business and crafting competitive bids. You don’t need tea leaves—solid facts and figures can do the job.

Here are four of the most burning business questions our clients ask, along with explanations of how budget forecasting can conjure up the answers:

1. How will my business change with recent awards? How will this change my indirect rates and my competitive position?

An effective annual financial forecast model functions as a living document that allows for real-time planning. The model is updated on a regular basis with actual results, along with the latest known assumptions for new business and the timing of awards. You can get a clearer picture of current, year-to-date, and especially the outlook for year-end rates and multipliers.  You can calculate the indirect rate impact to use for future bidding and to support other business decisions. For example, you can add new business assumptions and see quickly how much you can invest in infrastructure growth, or to remain competitive, how much your rates will drop for future bidding, or some combination of investment dollars and bidding rate reduction.  You will have real, actionable information.

2. What do my cash flow and line of credit requirements look like based on different scenarios?

An annual forecast model is an ideal tool to support planning for the “what-ifs” and focus on what affects the key growth drivers of your business. These scenarios could include items such as:

  • Cash and line of credit requirements to secure the proper level of financing for business needs.
  • Insight into how many people you can hire to support contracts, HR, finance, and project management.
  • Year-end tax strategy, bonus plans, and other key spending.

3. What would be the impact of a slowdown or delay in business? Show me what it looks like to push everything back 60 days. Show me what it looks like to reduce win estimates by 20%.

Budget forecasting allows you to quickly see the cost impact of a slowdown or delay in business as well as how it would affect areas such as staffing needs and profit. The forecast model’s in-depth “what-if” forecast capabilities (see #2 above) allow you to adjust your strategy throughout the year and understand in detail how key variables can affect your bottom-line financial results.

4. What is my anticipated tax outlook?

An annual financial forecast model provides visibility into your projected tax position so you can establish tax goals and create a strategy to reach them. You can then review the plan at scheduled points throughout the year and as you approach year-end to make sure you stay on track and make necessary adjustments to meet your objectives.

Reach out to CAVU’s finance and accounting team to take your annual financial forecast model to the next level with a customized performance dashboard that adjusts to reflect shifting business conditions. Key indicators covered include:

  • Cash & receivables
  • Income statement
  • Indirect rate & cost performance
  • Utilization & backlog

Budget forecasting with the right metrics can help you create a more predictably profitable future.