Forecast for a Business in Excel
Tips for Forecasting a Business Budget
Using trend analysis and other Excel functions can make forecasting for a business budget or plan much easier.
Forecasting of any sort can be a daunting process whether a person works for a large or small business. Forecasting a business budget can be especially difficult, as the accuracy of the budget will likely be heavily scrutinized. For individuals working for larger companies, the budget may mean the difference in earning a bonus or even be a factor in keeping a job. For a person using forecasts to budget and plan for a small business, accurate forecasting may give the business a better chance of survival. There are several tips that can help when forecasting a business budget, trend analysis in Excel is one method.
Forecast Using Excel
While the financial manager of a special business unit for a large company may have access to programs that make planning easier, most individuals who are creating a budget (in both large and small companies) will have to rely on Excel to forecast. Fortunately, Excel can be a great modeling program and a powerful forecasting tool when it is used properly.
Finance personnel using Excel to forecast for budget purposes will likely find it useful. However, if a person is trying to use Excel for larger projects (such as sales by product line or something similar) where there is a lot of data, Excel can become slow to calculate. Analyzing larger amounts of data can also increase the chance of error in forecasting as well. However, even for large amounts of data, Excel can be used if a person is careful and ties out his or her work occasionally (that is, the areas that can be tied).
Regression Analysis
A smaller business that may have their annual plan and budget all rolled into one process, which means that items like sales and costs will be a part of planning items such as overhead and wages. While some of these items are simple to budget for (e.g. a 4% increase to wages for the coming year), others are not so simple (e.g. sales).
For items in the budget that can be more difficult to predict, gathering data and performing regression analysis can provide more accuracy. For simple regression analysis, the trend function in Excel can be used. To use the trend function, gather as much data as possible for what is to be analyzed.
For example, to predict sales for a particular product line for the next 12 months, a person might gather the sales for the last six months. The six months of actual data would be labeled above with the numbers one through six. Then the months the person wishes to predict would be labeled seven through 18. The trend function can then be used to predict what will happen in the forecasted months based on what happened the last six months. For support in how to use this function, see Excel help files. For more complex analysis, such as how a new advertising campaign has affected sales, multiple regression analysis would be used.
Evaluate it with Common Sense
Once a budget has been completed and factors such as sales and gross profit (GP) have been trended, the next step is to take a step back and look at the numbers to make sure they make sense from a high-level. A person should also get input from other departments as well to make sure it makes sense from their standpoints and make adjustments as needed.
Related Articles:
The Financial Planning Process
The Purpose of a Business Budget
