Quick Insight
Everything is backward when budgeting. In real life, activities consume resources. These activities—hopefully—lead to sales.
In budgeting, you may start with your revenue goal, back into how many units of sales that represents, and then what resources you need to achieve that. One way of creating a budget is to set revenue, determine a profit target, then fill in the costs to achieve your profit target.
Accountants are good at looking backward. They often talk about last month and last year. They identify issues in financial statements and find the causes for them. While doing this, they are learning skills that help them in the backward world of budgeting.
However, budgets and projections are a financial analysis exercise, not an accounting one. Accountants spend whatever time is needed to get a very accurate result, while analysts spend only enough time for a good decision.
Trying to achieve unattainable accounting accuracy in a projection is a waste of time. Instead, balance efficiency and effectiveness of analysis. Clearly understanding the decision needing to be made help define when analysis can stop.
- Rob Stephens
Founder of CFO Perspective and the Finance and Strategy Toolkit (FAST)
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Further Insight
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