Be passionate about budgeting. We are. And that’s because your budget directly enhances your business’s decision-making power.
It’s simple. You can’t exceed your company’s financial goals if you don’t know what they are. And you can’t understand your financial goals if you don’t build a budget.
That’s why budgeting needs to be more than a once-a-year activity. You can do quarterly budgets and monthly budgets. But what you’re looking for out of any budget is “extreme visibility.”
Extreme visibility is the ability to see where your company is heading financially clearly.
Create Visibility with Guided Discovery
Where’s your company going? The easiest way to answer this question is by designing an adequate budget. The right budget serves as a roadmap for how to meet your goals.
Once you know where you stand today with your company’s performance and outlook, you can figure out where your company should go from there. CAVU uses the Nue Guided Discovery Process within the Nue Financial Forecasting and Scenario Planning System*. Nue Guided Discovery is a process of gathering and analyzing results to more rapidly absorb information and use it for informed decision making.
We use a 3-step approach of:
- Get It – Grab data from your existing information systems.
- See It – Targeted, balanced visualizations to see where you stand rapidly. Visually see in charts and reports where you are going and compare to other plans.
- Use It –Create “what if” scenarios and compare alternatives for informed decision making.
Bottom-Up vs. Top-Down: Which Budget Is Right for You?
There are two ways to determine your budget. You can go from either the top down or the bottom up. Here at CAVU, we recommend doing both.
A bottom-up budget looks at each line item in your budget process. Then, it layers on Nue Basis of Estimates to determine the other costs that are either fixed or variable in your budget.
A basis of estimates is the business rules you apply to your budget line items. It helps to have this process automated. We’ll show you more about how to do that below.
A top-down budget helps you determine a high-level plan and is particularly useful for multi-year planning. This is done by selecting the basis of estimates that combines trends from previous years and applies ratios (such as % of sales) to your forecasts.
Using these two approaches in conjunction gives you a plan for how to build your business for years to come.
Why You Should Use a Scalable Forecasting Platform
Of course, the easiest way to build a monthly budget is to base it on your previous budget. And with a scalable forecasting platform, this turns into a simple process. Just quickly copy from an existing budget to a new scenario or to the next year(s). Edit, view, repeat.
A scalable forecasting platform also allows for effective scenario planning. When you upload your current budget information, it’s much easier to plan for different possible scenarios. To incorporate new programs, new staff, or changes in expenses, you only need to update a few numbers.
All this allows you to look—and move—forward as a company, which is the real purpose of a budget. Is there enough sales pipeline to generate revenue goals? Are your indirect rates competitive? What will they be with changes in business volume? What is your cash and line of credit requirements? What is your profit outlook, and how is that influencing your company’s value? In other words, are you the company you imagine yourself to be?
Discover Your Budget Solution
We’ve covered a lot of ground today. But there’s an easy way to accomplish everything you need in the budget building process.
The Nue Financial Forecasting and Scenario Planning System has an automatic basis of estimates function to make bottom-up or top-down budgeting a breeze. When input variables change, the system will automatically iterate your forecasts so you can see the full impact. Save a baseline plan and compare your latest changes to know how you are progressing and be able to take corrective action faster. Nue also has a built-in enterprise value calculator to help you see how your decisions are impacting company value.
An effective forecasting platform will move you to answer not only “could we?” but most importantly, “should we?” The Nue Financial Forecasting and Scenario Planning System allows you to build a budget with extreme visibility. Download our ebook to learn all about the process and steps to take.