How Do You Prepare a Budget and Forecast for a Company?

The Milestone Team May 27, 2024
A man preparing a budget and forecast for a company

Budgeting and forecasting services can help turn your business’s line items into a competitive advantage. How? By ensuring that all of your financial resources are accounted for and allocated to activities that will deliver a good future financial outcomes. In this guide, we go into the details of an effective forecasting and budgeting process.

We also cover pressing questions, such as:

  • What is the initial step in preparing a budget or forecasting?
  • Are a budget & forecast the same thing?
  • What is a budget example?
  • What is a forecast example?

Let’s dive in!

Introduction to Budgeting and Forecasting

The main purpose of budgeting and forecasting in business is to get a clear financial picture of where your organization is headed and to prepare accordingly. To achieve this goal, budgeting and forecasting each have distinct roles within the overall process.


Forecasting is one of the earliest steps in financial planning. The goal of this step is to estimate how internal and external trends will affect the company’s financial future. For example, forecasting may reveal an opportunity to break into a new market by releasing an exciting and innovative product. Based on what a business discovers during forecasting, it can develop a strategic plan to capitalize on opportunities and navigate challenges.

Successful forecasting involves two key components:

  • Gathering Data: Assemble relevant internal historical financial data, such as figures from income statements, cash flow statements, and balance sheets. Gather related external data points, including supply costs, fixed and variable costs, and customer spending trends. 
  • Analyzing Data: Find connections between data points that can reveal patterns and inform strategic decision-making.

Forecasting is flexible and can be readily adjusted as new information becomes available.

Introduction to Corporate Budgeting and Financial Health

Budget Preparation 

Budgeting happens much later in the financial planning process, as a budget represents how many resources are allocated to a specific purpose. Inaccuracies during the budget planning process can negatively impact the efficiency of a business, because covering unexpected expenses from one initiative will often require pulling resources from a different initiative.

Businesses can implement different methods of budgeting to best fit their needs, including:

  • Traditional Budgeting: Traditional budgets allocate resources based on the previous year’s expenses. 
  • Zero-Based Budgeting: Zero-based budgets work from the ground up, offering a fresh perspective when allocating resources.
  • Rolling Budgeting: Rolling budgets “zoom in” on a monthly or quarterly basis and are ideal for budgeting for short-term projects and goals.
  • Flexible Budgeting: Flexible budgets leave more room for uncertainty, which can be a good option when pursuing experimental projects.

Budgeting should reflect discoveries made during the forecasting process.

Ready to get the most out of your business’s financial future? Contact us today to get started. 

What Is the Initial Step in Preparing a Budget and Forecasting Plan?

Forecasting needs to happen early in financial planning because it gets your business oriented. Like a sextant for sailors, a forecast allows you to consider key indicators when plotting your course. Where a captain looks for constellations, a forecast focuses on financial data points and observations, such as:

  • Internal financial data from a specific business cycle, including revenue and marketing expenses
  • External demographic data like changing customer tastes
  • Relationships between changes, especially cause and effect
  • Outliers that could skew data analysis
What Is the Initial Step in Preparing a Budget and Forecasting Plan?

When executing the forecasting process, your team has options for different methodologies. The following three examples are the most common:

  • Extrapolation: This method focuses on historical data and projects past trends into the future. If the status quo continues, extrapolation can put you on the right path.
  • Regression Analysis: This method digs deeper than extrapolation and seeks to identify causal relationships between variables.
  • Hybrid: This method combines the best of both extrapolation and regression analysis to give your team the full picture when planning for your business’s financial future. 

In other words, for effective forecasting, you need to know where to find relevant information and what to do with it. To get the most out of this process, it helps to work with professionals. Contact us to learn more.

How To Prepare a Forecast for a Company?

The first step in forecasting is to determine the purpose of your financial planning. Depending on your strategy, the data you need to make effective decisions will change. For example, will you focus on predicting how many units your business will sell of a new product, or is your main concern about how supply costs will shift over the next several quarters?

Once your team has a unified direction, take the following steps for how to prepare a forecast for your company:

  1. Determine a Baseline: Use historical data to create a clear picture of your current standings for a specific metric, such as sales volume or digital marketing ROI. This baseline will provide context for projected figures.
  2. Project Trends: Use both quantitative and qualitative data to estimate future financial trends. This step should also include thorough data analysis to find meaningful patterns.
  3. Compare Forecasts to Business Goals: With both data and insight at your disposal, it’s time to act. You may find that you can charge ahead with your current strategy, or you might need to adjust your sails.
  4. Evaluate and Adjust Forecasts: Forecasts are rarely—if ever—100% accurate. As you implement your strategy, new data will become available that will change projected trends. Build in space for flexibility so your team can adapt to shifting needs and market conditions.
How To Prepare a Forecast for a Company?

Having access to the right tools and software can help make your forecasting process as beneficial as possible. The six most common company finance tools to get the job done fit into the following categories:

  • Sales Forecasting Software
  • Demand Forecasting Software
  • Financial Forecasting Software
  • Cash Flow Forecasting Software
  • Revenue Forecasting Software
  • Budget Forecasting Software

Fortunately, there are a lot of amazing programs available for businesses to level up their forecasting. Unfortunately, too many choices can be overwhelming and confusing. At Milestone, our experts are here to help with any (and all) stages of financial forecasting. Whether you want an additional perspective during data analysis or you want the best software system for your finance team, a helping hand is just a phone call away.

How To Prepare a Budget for a Company?

Follow these eight steps during budget preparation to get the most out of your company finance planning:

  1. Establish Clear Goals
  2. Evaluate Previous Budgets
  3. Assess Revenue Estimates
  4. Outline Expected Expenses
  5. Anticipate Cash Flows
  6. Prepare for Contingencies
  7. Allocate Resources Efficiently
  8. Monitor and Adjust

The goal during budgeting is to take the data and insights your team gathered during forecasting and develop a concrete financial plan. Budgets allocate resources for an initiative during a specific time period, and these plans are much less flexible than forecasts. If you need to make significant changes to one department’s budget, you may have to readjust the resources available to other departments, which will throw everyone off. In other words, accuracy is mission-critical. Therefore, no “How to prepare a budget for a company” checklist is complete without the following line items:

  • Supplies: Office essentials like pens, sticky notes, and chairs
  • Software: Most applications operate on a software as a service (SaaS) model, so software costs will typically be a recurring monthly expense
  • Services: Third-party services that keep your projects moving forward, such as advertising
  • Wages: All of the costs associated with retaining top talent, including salary and benefits

Another essential component of financial planning is coordination between departments. When departments keep careful track of their expenses and budgetary performance, it makes planning for the future easier. Organizations with more data can efficiently manage their resources and create a higher impact with their investments and create better financial performance.

How To Prepare a Budget for a Company?

What Is an Example of a Budget and Forecast?

To get a better understanding of how budgeting and forecasting actually play out, check out this case study published by LinkedIn

  • Challenge: CNC Machine Shop lacked the data and organization for an effective budget.
  • Solution (Part 1): Overhaul forecasting process to gather relevant data across all seven revenue streams. To achieve this transformation, CNC Machine Shop set a trend line based on the past three years of sales. This resulted in projecting an end of fiscal year loss of $3.3 million.
  • Solution (Part 2): Adjust budget to account for insights gained during forecasting. Action items included: optimizing workforce, prioritizing high-yield sales efforts, and exploring third-party service options.
  • Results: CNC Machine Shop spent the rest of the year recovering from their financial troubles instead of digging themselves deeper into debt.   

Looking for more on what an example of budget and forecast is? To see how partnering with a financial services provider can help, review our case study on how Milestone’s CFO services deliver strategic support for a SaaS startup.

Best Practices and Common Pitfalls for Budgeting and Forecasting

For optimal results during financial planning, follow these forecasting and budget preparation best practices:

  • Have a plan so you can compare budgeting plans with organizational goals
  • Be realistic and make data-backed decisions
  • Prioritize high-impact initiatives when allocating resources
  • Include flexibility in budgeting
  • Facilitate collaboration between departments
  • Monitor changes and revise financial plans as new information becomes available

Get Budgeting and Forecasting Services You Can Count On with Milestone

One of the most common pitfalls that businesses make when it comes to financial planning is taking a reactive approach. When bandwidth is tight, it’s tough to dedicate the time and resources to developing a thorough forecasting and budgeting process. That’s where financial services providers—like Milestone—come in. When you partner with us, you can make your finances work for you instead of against you. Get in touch today to learn more.

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