Budgeting and forecasting are two of the most important management accounting tools. These tools are generally used to plan and control the finances of any business.
Budgeting is a tool that creates financial targets for the future and also makes plans that can easily achieve those targets. This tool can easily foresee revenue, and expenses as well as allocate resources. Budgeting assists any small and big venture to prioritise their spending, use their resources effectively, and successfully achieve their final goals.
Forecasting, on other hand, is a tool that foresees the future financial performances of any venture. It predicts the future by deeply analysing past and present performances. This helps to avoid potential risks and open alluring opportunities for the business. It also helps to make profitable investments and manages a company's finances proactively.
Budgeting and forecasting are essential concepts in the US CMA program, a top-level management accounting certification recognised by more than 170 countries. Hence, it is always essential to incorporate budgeting and forecasting into the curriculum of a preparatory program for the CMA certification.
Importance of Budgeting and Forecasting
There are plenty of benefits to budgeting and forecasting in management accounting. Any proper CMA program will introduce the benefits as it is an extremely essential lesson. These advantages have been precisely enlisted below:
- An efficient budgeting and forecasting plan allows any business to create accurate business analytics along with financial reports. These tools are essential in a competitive market where adversaries are increasing rapidly. It assists the venture to grow and yield more revenue.
- Adopting an effective budgeting and forecasting plan for account management can create more explicit plans without any serious errors. These tools have been proven to be more helpful in a competitive market as they save time and allow collaboration. Such characteristics of budgeting and forecasting are extremely favourable for generating a more regulated management culture at any company.
- It can easily foresee potential threats and risks in the initial phase. Subsequently, they help to eradicate that problem before it turns into a grave situation.
- Budgeting and forecasting develop generic plans that support a venture with its growth. Apart from that it also creates an expenditure list that allows any organisation to spend wisely and save capital.
- It also helps to pitch potential investors with past data analytics and sources of the company.
- With the assistance of budgeting and forecasting any organisation can create an intense connection between finance and operational plans.
To become a CMA one needs to have a vivid knowledge of budgeting and forecasting. Apart from that a Certified Management Accountant (CMA) must ace tasks like auditing, analysing budgets, organising tax returns, etc.
All the aspirants must take the CMA exam after completing the online CMA course. This examination is generally conducted by the Institute of Management Accountants (IMA).
Issues Organisations have to face while working with Budgeting and Forecasting tools.
Budgeting and forecasting tools are accompanied by several challenges or issues. Every company has its way to use and implement these tools in its business. However, they might face similar problems while working with it.
Here are a few challenges that a company might face while using budgeting and forecasting:
- Businesses at times are incapable of finding any purpose in creating a budget. Hence, they show the least commitment to generating a budget as they have more important tasks to complete.
- After choosing a particular budget a company has to go through many manual works. Hence, the procedure becomes quite time-consuming and may end up creating erroneous data.
- Often it is quite difficult to create a budget as organisations lack transparency of data and processes. The data are compact and clear only at the department level. When it comes to a larger aspect the data seems to be vague.
- When it comes to forecasting many ventures take weeks to predict and create an effective budget. This creates chaos and data becomes irrelevant by the time a proper budget is forecasted.
Difference between Budgeting and Forecasting
Budgeting and forecasting are often used together but there are plenty of differences between them. These differences have been stated down below:
- The first key difference is the purpose. Both have different purposes. Budgeting is used to create a plan that a company would follow for a year or months.
While forecasting is used to figure out whether the budget would be successful within the allocated period.
- Both of these tools use very different methodologies. Budgeting generally observes past data to generate a realistic goal. Whereas, forecasting focuses more on present trends to see whether a budget can reach its goal.
- Budgeting is a broader field that encompasses various things like financial position, cost, profit, revenue, etc. On the other hand, forecasting just deals with revenue and expenses. Therefore, it is a narrower aspect.
- Budgeting is a long-term process that may lead to rapid changes in a company. While forecasting is a short-time process and does not contribute to any rapid changes.
- Budgeting consists of specific numbers or values that a company wants to achieve. Therefore, it consists of a lot of numbers like revenue generated, loss faced, and units sold.
Whereas, forecasting consists of predictions which are generally written in numerals, statistics and percentages.
Budgeting and forecasting are the basic fundamental knowledge one must possess to become a CMA. Imarticus Learning has brought an excellent accounting and finance certification course for CMA aspirants.
This online US CMA program is handled by qualified experts who will provide a learner with enough study materials. This CMA certification course will roughly take a period of 6 to 9 months and offers guaranteed placements at top-notch companies. So without any further delay get yourself enrolled in this CMA course to bag alluring opportunities.