Successfully running any business requires a combination of coherent goals, strategies to meet those goals and analysis to evaluate what to do when goals are not met. Planning, budgeting and forecasting are all pieces of the financial management puzzle and together they can help form, analyze and evaluate financial performance and suggest solutions to problems. It's more than putting together spreadsheets or crunching numbers.


Planning is the process by which a company sets out its overall goals and the specific strategies it will implement to meet them, in both the short and long term. It may include the budget, as well as other qualitative and quantitative methods. If the goal is to increase revenue 10 percent, planning will estimate the target and suggest methods, such as obtaining new clients or increasing client billings. Planning may encompass personnel requirements, plant and capital investment and whether to fund growth by issuing equity or debt.


This is an annual process which generally starts with the previous year's actual revenue and expenses and builds a new budget. It is the number-crunching piece of the puzzle, and turns estimates of increases or decreases in specific areas based on economic, demographic and other trends, plus the goals handed down during planning into specific revenue and spending accounts. For example, if revenue was $100 million last year, and you want a 10 percent increase and expect an 8 percent increase in costs, a detailed financial budget process allocates these increases and decreases, often to the month, week or day, particularly for retail businesses.


This is a process of fine-tuning or even adjusting future budgets based on ongoing performance. If early goals slip, it will affect the chance of achieving later goals. Through forecasting, a revised budget can be implemented during the fiscal year, and allow necessary adjustments in expenditures and strategies as necessary. It's key for business to be constantly monitoring goals to make necessary changes as quickly as possible when there are shortfalls in production, revenue or any benchmark activity.

A Powerful Combination

Many small business owners simply want to do the day-to-day work that they enjoy, the core of the business, whether it is landscaping, repairing computers or manufacturing a product. It takes another level of analysis, or financial management, to go beyond the business of the business and be successful enough to grow. By taking charge of how you run the business, budgeting and forecasting key financial data, you have both the data and the knowledge to improve and expand. If you intend to borrow money or attract investors, these processes are likely to be a requirement.