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MODULE 3: PLANNING, BUDGETING AND FORECASTING :explode: :tada: - Coggle…

- - - - How Forecasting Fits into Budgeting? :<3:
        :explode: Forecasting provides data and insights needed to create a realistic budget, and ongoing forecasting helps company stay on track and adapts the changes.
        
        1. Initial Forecasting:
        
        :!!: Before creating a budget, business often start with a forecast. This involves predicting future revenues, expenses, and other financial metrics based on historical data and market trends.
        
        :warning: Example: if a company forecasts that sales will increase by 10% next year, this info will be used to set realistic revenue targets in the budget.
        
        2. Creating the Budget
        
        :!!: Using the forecast as a foundation, company then creates a detailed budget. This budget allocates resources and sets financial goals for different departments or projects.
        
        :!!: Budget will include specific targets for rev, exp and other financial metrics, based on the initial forecast.
        
        3. Ongoing Forecasting
        
        :!!: During the year, company continue to update their forecasts based on actual performance and new info. This helps them adjust their budgets and make informed decisions.
        
        :warning: Example: if actual sales > forecasted, the company might revise its budget to allocate more resources to production or marketing
        
        EXAMPLE: A COFFEE SHOP :star: :fire: Forecasting VS Budgeting
        
        Revenue
        
        Forecasting: :forbidden:
        
        Scenario : :silhouettes: You analyze past sales data and notice that your coffee shop's revenue tends to increase by 15% during the summer months due to higher foot traffic.
        Forecast : :pencil2: Based on this trend, you forecast that your rev for the upcoming summer will increase by 15%. If you made $10,000 last summer, you predict making $11,500 this summer.
        Purpose : :red_flag: This helps you anticipate (predict) future rev and make informed decisions, such as ordering more supplies or hiring additional staff.
        
        Budgeting :warning:
        
        Scenario : :silhouettes: At the beginning of the year, you set a rev target for your coffee shop. You aim to achieve $125,400.00 in rev for the year.
        
        Budget : :pencil2: You break this down into monthly targets, planning to make $10,450/month or:
        
        Jan:$7,000/month; Feb & Mar: $8,000/month;
        
        Arp - Jul: $12,500/month
        
        Aug - Oct: $10,000/month and
        
        Nov & Dec: $11,200/month.
        
        This budget helps you set financial goals and track your progress.
        
        Purpose : :red_flag: This provides a roadmap for your financial goals and helps you allocate resources to achieve these targets.
        
        Expense
        
        Forecasting: :forbidden:
        
        Scenario : :silhouettes: You review your past exps and notice that utility costs tend to rise by 10% during the winter months due to heating.
        Forecast : :pencil2: You forecast that your utility expenses for the upcoming winter will increase by 10%. If you spent $1,000 on utilities last winter, you predict spending $1,100 this winter.
        Purpose : :red_flag: This helps you anticipate higher exps and plan accordingly, such as setting aside extra funds.
        
        Budgeting :warning:
        
        Scenario : :silhouettes: At the beginning of the year, you create a budget for your coffee shop's expenses. You allocate $13,050 for utilities for the entire year.
        
        Budget : :pencil2: You break this down into monthly allocations, planning to spend $1,087.50/month on utilities or:
        
        Jan - Mar: $800/month
        
        Apr - Aug: $1,250/month and
        
        Sept - Dec: $1,100/month.
        
        This budget helps you control costs and ensure you don't overspend.