Last week, we outlined the three types or frequencies of budgeting. Today, we’ll share more detail on annual forecasts and what to consider.
Annual forecasts look at data over a 12-month time period. This can be a good method for long-term, less detailed projects and analysis.
It can be useful for measuring changes and trends. For example, maybe a certain new government policy has the potential to affect your business. It can be difficult to say over a shorter period of time just how much of an effect it has had. But a year’s worth of data should be able to paint a good picture.
This is also a great option when you’re looking at a growth strategy or adjusting your sales and marketing plan. Often, those types of processes take longer to propagate and reinventing the wheel too soon can stop it from gaining momentum. A yearly forecast helps give you enough perspective to make informed decisions.
What else can be good to measure in an annual forecast? Budget items like changes in raw materials, commodity costs, health care expenses, energy costs, competition, expansions, and new product offerings. Also, if you want to approach potential lenders or investors, typically they will want to see longer-term forecasting.
Yearly forecasting isn’t your best choice if you are looking at seasonal events or changes like a holiday coming up, if you are in a financial tight spot, there is a lot of fluctuation in your business, or you take on more detailed projects. For those, you might want to look at quarterly or monthly forecasting.
Join us next week as we go in to more detail about quarterly forecasting.