Predictive Accounting is the ‘financial interpretation’ of the business plan

A Business Plan is a ‘wordy’ document. By contrast, the series of documents comprising the Predictive Accounting Reports include numbers to show the ‘financial interpretation of the business plan’.

The Budgeting Process is very important for all types of organisations, from small to major organisations, and in every instance, this process has the significant benefit of ‘bringing the business plan to life’.

Budgets give a forecast for the next year or three years, or more, on a monthly basis to convey a story of how the business is expected to perform. Furthermore, one of the major benefits is that it enables an analysis to be undertaken each month, where the actual performance is compared with the expected performance. The variances should be calculated and referred to the management team responsible for each individual business unit, so that the reasons for the variances both good and bad can be determined.

At this time, the full benefits of the budgeting process have not been achieved because management now needs to determine whether there should be changes in the work process, costs, selling price of products/services within a business unit as compared to the original budget. This can lead to a revised budget estimate been prepared which can be reflected in a ‘ROLLING FORECAST’, which the terminology is given to a revised budget having been prepared for an individual business activity. This way, the original budget estimates are not scrapped but are there to highlight what the results were originally expected to be.

The key drivers are an area of vital importance for a business because this is where some major items are located and these normally need ongoing analysis each month. For example, the estimate of debtors outstanding at the end of each month has been based on the estimate of what the ‘debtors days outstanding’ will be at the end of each month. This KPI should be clearly identified and the KPI needs to be calculated on a monthly basis, to ensure that the Debtors Days Outstanding does not exceed what the original budget estimate was. Otherwise, there will be cash flow issues for the business.

Each Key Driver subaccount should be analysed monthly, to determine whether variations are occurring from the assumptions that were made in the original deliberations for the Predictive Accounting Report.

To find out how Towers Business Development can assist your business with these services, contact us on 1800 232 088 or email .