Budgeting is an integral part of the overall planning process, not just its financial position. It is advisable to implement the mechanism of budget planning of income and expenses to ensure money savings, greater efficiency in managing these funds, and reducing unproductive costs. In current market conditions, the prediction comes to the forefront since the development of an action plan in various conditions of the enterprise’s activity is of great importance. Financial forecasts are necessary for the company to build a future picture of the economic situation, and anticipate possible problems and financing needs.
Financial forecasting makes it possible to increase enterprise management level since it ensures the close coordination of all production processes and the nature of relations between the economic divisions of the enterprise. Krylov (2018) claims that financial forecasting is used to effectively manage the company’s cash flows to overcome its economic difficulties and improve the indicators of its financial position. It is necessary for the preparation of the enterprise budget, mainly part of the expenses. The revenue part, as a rule, is considered the least predictable. It is unnecessary to increase the forecast period too much, as this increases the risk of uncertainty and reduces data reliability. Sometimes, there may be a sharp change in the balance of the company’s funds in some conditions: their inflow or outflow. If such situations are typical for the company, it will be advisable to make weekly forecasts.
Budgeting and forecasting are among the most popular and reliable tools. The introduction of budget management and financial forecasting at the enterprise contributes to improving financial discipline, improving the economic validity of decisions made. In addition, it helps to improve the system of operational cost management and improve the professional skills of personnel in financial management. Since financial resources are limited, the company should dispose of them most effectively to preserve and increase these resources. For these purposes, the company must have a plan or budget.
Reference
Krylov, S. (2018). Target financial forecasting as an instrument to improve company financial health. Cogent Business & Management, 5(1), 1-42. Web.