What is Planning, Budgeting, and Forecasting?
Planning: Planning sets the framework for a business’s financial goals.
Budgeting: Outlines the month-to-month execution of this plan, detailing aspects like revenue, expenses, potential cash flow, and debt reduction. Traditionally, a company designates a fiscal year and creates an annual budget, which may be adjusted based on actual revenues or compared with actual financial statements to assess progress.
Forecasting: Forecasting uses historical data and market conditions to predict future revenue over the next few months or years. These forecasts are usually updated as new information becomes available.
Types of Budgets
Operating Budget: The annual operating budget primarily involves estimating all revenues and expenses that the entity will incur over a specified period to achieve its business objectives. It includes detailed accounts of daily income and expenditures, aiding in the assessment of the company's financial health and its capacity to manage daily operations.
The operating budget forecasts the upcoming period’s core business income and operating expenses. It includes:
- Projected Sales or Revenue: Expected product or service sales earnings based on historical performance, growth strategies, and market analysis
- Direct Costs: Variable expenses like raw materials, wages, and commissions that vary proportionally to production volumes.
- Fixed Costs: Expenses unaffected by volume such as rental, utilities, salaries, and insurance premiums.
- Overheads: Indirect expenses like administration, security, and ancillary service costs critical for operations.
Capital Expenditure or CapEx Budget: A capital expenditure budget is a financial plan that outlines an organization's investment in long-term assets and major projects. It includes the anticipated costs for acquiring, upgrading, or maintaining physical assets like buildings, machinery, and technology. The purpose of a capital expenditure budget is to ensure that the organization allocates resources effectively to support growth and operational efficiency. Key components of this budget include estimated costs, timelines, and funding sources. It is crucial for financial planning as it helps manage large investments, control spending, and align expenditures with strategic objectives.
How can a user create a Budget in Versa?
- To begin creating a Budget in Versa, users need first create the Budget Type
I. From Under Setup>Company>Budget Type users need to create the Budget types
II. Users can create multiple budgets as per the business requirements
- To follow this up, Users should set up Budget Statuses
I. From Under Setup>Company>Budget Statuses users need to create the Budget Status
Statuses in Versa Cloud ERP:
Draft: This status indicates a budget that is in the initial stages of creation. It is still being worked on and is not yet ready for review or submission. A draft budget is typically editable and may be subject to significant changes.
Pending: A pending budget has been completed and submitted for review and approval. It is awaiting a decision from the relevant authority or authorities.
Approved: An approved budget has been formally accepted and authorized. It is now the official financial plan for the given period or project. An approved budget serves as the baseline for tracking income and expenditures.
II. Users can create multiple budget statuses as per the business requirements
- Once these preliminaries are set, users can begin creating a budget from under Setup>Company>Budget.
I. Click on "New Budget"
II. Fill in the Budget Status, The Type of Budget, and the accounting period for which the user wants to set up the budget. The user can set up the 'Budget by' as Yearly, Monthly or Quarterly. Once the details are filled in, hit "Create Budget". Now your Budget is listed in, to begin updating the budget hit 'Edit'
III. Once the Budget record, is created users can start adding the lines. This can either be done by 'Add Budget Line' individually or by 'Import from Spreadsheet' from the 'Blank Spreadsheet for importing'
IV. Scenario I: Add Budget Line
Click on the +Add budget line, which will open the fields for the user to add the information related to the budget
As an example:
We will be Budgeting for Bank Charges for the year 24. We are budgeting the expenses monthly. The user will add the Amount per period, and the user will add 12 Periods and budget the per month amount the business is anticipating to spend.
Please Note: For every Expense/Income to be added the user will keep adding a New Budget Line and the Individual Expense/Income will have a New Budget Item Amount line for the periods.
Scenario II: Import from Spreadsheet
Users can download the Budget template. Detailed instructions on the budget template:
https://support.versaclouderp.com/hc/en-us/articles/32202531057299-Budget-Import-In-Versa-Cloud-ERP
V. Once all the budgeting activity is completed hit 'Update Budget'.
VI. Dimensions: Users can also create a budget for dimensions.
To explain this we will be using an example:
In Versa users can set up Various Pricing levels for various Sales Channels such as Amazon, eBay, Retail, Walk-in, and Shopify and at the same time have pricing level set for Various customers depending on their type such as Wholesale, Business etc.
Now a user in Versa can create a Marketing Budget for each channel, for how much money does a business need to spend for the marketing effort per channel in a period.
Note: The budgets with dimensions are created via import.
Budgeted vs Actuals Reporting
Once the budgeting activity is completed, see a comparison between the Budgeted and Actual, user can click on 'Report'
This will give the user a comparison of Budgeted vs Actuals between periods:
In addition to this, Versa can also add budgets to a financial report as an additional column.
From the Reports menu users can go to 'Edit Report' and make a copy of a financial report. In this case, we can use an income statement, Under Report>Edit Report>Income Statement>Copy.
The user can edit the copied Income Statement and add a column for the Budget and include it in the Report. The new report can be renamed to include the updated information.
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