Explain the importance of a personal
budget
 Describe how budgeting helps
businesses manage their finances
 Display understanding of how
forecasting helps businesses manage
their finances









Budgeting
Cash Budgeting
External Factors
Extrapolation
Forecasting
Irregular Expenses
Manage
Measure




Operating Budget
Qualitative Analysis
Quantitative Analysis
Resource Allocation
What is a budget?
 What is the purpose of a budget?

› A budget is a detailed plan of income and
expenses over a period of time. Point out
that individuals and families as well as
businesses use budgets to help them
manage their finances





Every business—no matter how big or
small—must use budgets.
A budget is basically a plan for future
business spending and revenue.
A budget only keeps track of money going
out.
If you check your ATM balance regularly,
you don’t really need to balance your
checkbook.
Some of the work of developing an
operating budget involves making guesses.

Download- Reading: Budgeting Basics
› Just as an individual or family must keep
track of its own spending practices,
businesses must create budgets as well.
› Whether an individual, family, business or
government, creating a budget is just one
strategy that is important for financial
success.

“Businesses don’t plan to fail, they fail to
plan.”
› What does this mean?
What is a forecast?
 Why might businesses use forecasts?

Forecasting: predicting current and
future market trends using existing data
and facts. Forecasting is a process that
assists in the preparation of a balanced
budget.
 Inadequate financial planning is the
principal reason businesses fail.
 In fact, 80% of businesses fail because of
poor financial planning.


Download- Assignment: Forecasting
› First analyze the historical data and survey
data that are presented and then use the
data to make a forecast about the growth
of the ECPak Company
› The example does not include everything
that is needed make sure to elaborate and
make it better
Download- Diagram: Forecasting
 Follow along during the lecture to fill in
your diagram

 The
process of making extrapolations
about the future based on past data
is known as forecasting.
 Forecasting is used by businesses so
that they can make forward-thinking
decisions in the present and develop
strategic plans for the future.
Forecasting can inform decision-making.
 Quality of data is vital to quality of
forecasting.
 Forecasting enables businesses to plan
resource allocation.






It is impossible to predict the future with any certainty,
so predictions must be recognized as fallible.
The past is not a guide to the future. Numerical trends
can be helpful but are not always definitive.
Qualitative influences—human factors, peer pressure,
etc.—reduce the reliability of business forecasting.
Changes in business objectives can make forecasts
superfluous.
External factors—major world events, acts of nature,
and so on—cannot be predicted with any certainty.
Quantitative methods are used when
statistical data are available.
 Quantitative analysis involves tracking
“moving averages” and looking for
trends, cyclical variations, seasonal
variations, etc.
 Quantitative analysis involves
extrapolation: taking data from the past
and projecting it into the future.

Qualitative methods assess opinion.
 Consumer panels, focus groups, and inhouse judgments are common methods
of gathering data for qualitative
analysis.


Download- Assignment: Forecasting
› Looking at the historical data, how would
you describe the ECPak sales from 2003–
2007?
› What about the industry sales?
› How would you describe ECPak’s profits over
the last five years?
› What types of things can you forecast based
on the survey data? (For example, almost
every consumer expects the MP3
technology to improve.)
How did your summary of ECPak’s future
profits compare with your partner’s?
 List one similarity and one difference in
your analysis of the data.

Discuss three tools that businesses use to
measure and manage their finances.
 Explain two reasons why creating a
budget is important.
 List one benefit of forecasting.
