Budgeting and Forecasting: 10 Best Practices with Your ERP

Forecasting and budgeting have become essential tools as companies work to make precise financial choices. These procedures enable businesses to efficiently allocate resources, plan financially, and maintain their competitiveness in their respective markets. Budgeting and forecasting processes can be even more effective when organizations utilize real-time data, automation, and analytics. When combined with an Enterprise Resource Planning (ERP) system, the benefits are unmatched with transparent and accurate information readily available at your fingertips. Today’s Softengine blog covers ten key best practices for maximizing forecasting and budgeting with your ERP solution!

Keep reading to learn more and check out our ERP Glossary page for weekly insights into relevant business technology insights, terminology, best practices, and more!

What is Budgeting and Forecasting in ERP

Forecasting and budgeting serve different but complimentary purposes. By establishing expenditure caps and revenue goals, budgeting creates a financial plan for the future. In contrast, forecasting offers a predicted perspective on financial outcomes through dynamic estimation based on past data and patterns. With an ERP in place, both procedures are more efficient, data-driven, and better adaptable to changes in the market.

1. Clearly Define Your Goals and Metrics

Organizations should establish quantifiable results and precise financial objectives for your forecasting and budgeting. This guarantees that every department is in agreement on what constitutes success, be it a predetermined threshold for capital investment, a planned growth in income, or a decrease in expenses. You can also make regular modifications based on actual performance by using an ERP system to measure KPIs in real-time.

2. Use Historical Business Data to Improve Forecast Accuracy

Make use of past company data to increase the precision of your financial projections. By reviewing this historical information, you can learn about cyclical patterns, shifts in consumer demand, and market circumstances that affect financial results by examining historical trends. The ability of ERPs to extract historical data from several departments facilitates the creation of accurate forecasts. Research indicates that businesses report better financial planning outcomes when they base their estimates on both historical and current data.

3. Automate Integration and Data Gathering

Data entry by hand takes a lot of time and is prone to mistakes. Sales, inventory, payroll, and manufacturing data are all able to be seamlessly connected with an ERP, lowering the possibility of errors. Finance teams are able to concentrate on analysis by automating data gathering, which improves accuracy and efficiency.

4. Involve Cross-Functional Teams

All departments, not just finance, are involved in an inclusive approach to forecasting and budgeting. Teams from sales, marketing, human resources, and operations provide insightful information that can improve financial forecasts. ERPs facilitate this cooperation by offering shared dashboards and data views, which enable groups to jointly modify plans and observe the financial effects of their actions. When data is housed on one shared database, the company can achieve cross departmental collaboration and communication with peace of mind that the information is accurate, and reflects the most up to date situation.

5. Use a Model for Rolling Forecasts

Conventional yearly budgets might not have the adaptability needed in for businesses today, as things are constantly changing and evolving along with demand. By using a rolling forecast model, which is updated on a quarterly or even monthly basis, companies may modify their financial projections in response to new information. ERP systems make this possible by continually gathering and analyzing fresh data, enabling your projections to adjust in response to shifting company circumstances.

6. Include Scenario Analysis

Making financial estimates for several company scenarios, including the best-case, worst-case, and anticipated results, is known as scenario analysis. This tactic aids companies in foreseeing and preparing for potential obstacles and possibilities in a variety of situations. By facilitating data-driven scenario modeling, ERPs expedite this process and help prepare for changes in the market, the economy, or operational requirements.

7. Utilize Dashboards and Real Time Insights & Analytics

Finance teams have the ability to better grasp and understand their current financial situation at any given time with the use of real-time analytics provided by ERP solutions. Financial KPIs and variation assessments are shown on customizable dashboards, facilitating quicker changes. With real-time insight, there is less chance of surprises and shocks at the end of the month or year as you can respond right away if performance deviates and differs from the original projections.

8. Review and Update Assumptions Frequently

The assumptions used in forecasting and budgeting must be periodically reviewed and updated since market situations, economic environments, and operational capacity change over time and so frequently. ERPs make it easier to modify plans in response to new information by enabling organizations to revise predictions with little interruption. For instance, predictions can be promptly adjusted to account for supply chain delays or growing material costs in order to preserve financial accuracy.

9. Verify the Accuracy and Quality of the Data being Evaluated

For precise and accurate forecasting and budgeting, data quality is crucial. ERP systems lower the chance of mistakes by assisting in the maintenance of data integrity through automated validation tests. To avoid errors that might distort financial estimates, make sure that your ERP’s data sources are regularly checked, updated, and cleaned.

10. Assess the ERP System’s Forecasting and Budgeting Performance

Evaluate your ERP’s ability to fulfill forecasting and budgeting requirements on a regular basis. Teams should take the time to review the automation, reporting, and data integration features of the system. Businesses that routinely assess and modify their ERP systems report higher financial planning accuracy and efficiency as they have more updated and accurate information being presented.

Budgeting and Forecasting with ERP

By putting these best practices into effect with you ERP, businesses are equipped to make financial decisions that foster flexibility and expansion. ERP-based forecasting and budgeting enhances financial resiliency and organizational alignment by combining precise data, real-time analytics, and collaborative tools. In addition to improving financial predictability, taking the effort to refine these procedures lays a strong basis for long-term success.

Softengine is Here to Help!

Partnering with Softengine for your ERP implementation not only streamlines the data migration process but also ensures a seamless transition to your new ERP platform. Our team’s expertise, dedication, and commitment to customer success make us the ideal partner for organizations seeking to unlock the full potential of their ERP investment and scaling in the digital economy. Contact us to learn more about how our clients utilize ERP to enhance and scale their organizations, and see our solutions in action for yourself!

FAQs Budgeting and Forecasting

What is the difference between budgeting and forecasting?

Budgeting involves creating a financial plan for expected revenue and expenses over a period, while forecasting provides dynamic, data-driven predictions based on current and historical trends to estimate future outcomes.

Why is an ERP system beneficial for budgeting and forecasting?

ERPs streamline budgeting and forecasting by automating data collection, integrating various departmental data, and offering real-time analytics, which enhances accuracy and efficiency.

How can rolling forecasts improve financial planning?

Rolling forecasts, updated frequently, allow businesses to adjust financial plans based on recent data, which helps in adapting to changing conditions and making more accurate financial projections.

How does data quality impact budgeting and forecasting?

High-quality data ensures that financial plans and predictions are accurate, which is essential for reliable budgeting and forecasting. Inaccurate data can lead to flawed projections and poor financial decisions.

How often should businesses review budgeting assumptions?

It is recommended to review budgeting assumptions quarterly or whenever significant market or operational changes occur to ensure they remain relevant and accurate.