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Deciding which scenarios to create

From: Excel 2007: Creating Business Budgets

Video: Deciding which scenarios to create

When you develop your budgets for the coming year, it's usually a good idea to take into account possible scenarios that might occur. These scenarios can affect the amount of money available to your business either as income or in terms of loans. So you should take those into account. What are some things that you should take into account? Well, potential changes in the world and national economies. Also events within your industry and events within your company. For example, what if one of your new products or services is delayed? That might affect your orders, which would be reflected in the Accounts Receivable category.

Deciding which scenarios to create

When you develop your budgets for the coming year, it's usually a good idea to take into account possible scenarios that might occur. These scenarios can affect the amount of money available to your business either as income or in terms of loans. So you should take those into account. What are some things that you should take into account? Well, potential changes in the world and national economies. Also events within your industry and events within your company. For example, what if one of your new products or services is delayed? That might affect your orders, which would be reflected in the Accounts Receivable category.

Or what if a critical supplier can't give you all the parts you need or it goes out of business? All these considerations must factor into your analysis. When you're making your decisions take a look through your financial statements such as the balance sheet here and find the weak points. What were you worried about last year? For example, were you concerned that one or more of your customers might go out of business? If that's the case you'll get fewer orders. Or is it possible that the interest expense on a long-term obligation could change? Instead of only paying a $60,000 next year in interest, if you took out variable-rate financing you could end up paying a lot more in interest in the next year than you are in the current year, or that you budgeted for 2011.

Finally, how much money do you want to devote to buy new property and equipment? Most companies can skip a year in buying new computers or perhaps buying new printers. But in some cases those costs will be necessary and you'll have to may cuts somewhere else. Creating a budget is difficult mainly because it's impossible to forecast the future. When you start to think about your budget for the coming year, try to recall what concerned you or what excited you during the previous year. Those instincts will help you identify potential changes in your cash flow and potential for growth during the coming year.

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Excel 2007: Creating Business Budgets

22 video lessons · 9894 viewers

Curt Frye
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