A budget is a planning tool necessary for  building a framework  for your business and its finances. Combining past trends with realistic forecasts for the  fiscal year , a budget provides a detailed view of assets, realistic revenue expectations, and how those balance against your anticipated expenses.  

Budgets also help with setting goals and establishing priorities. A budget should detail where funding will come from to execute new strategies and how much revenue that can be generated by executing the strategies successfully. The line items that command the most funding or generate the most revenue typically are high-priority items, and that can serve as a good reminder of your overall strategy when making decisions.  

An effective budget should break down revenue and anticipated expenses by month or by quarter, and depending on the size of your business, it should include separate budgets for each department. These departmental budgets also should be broken down by month, product and/or customer and collectively they will come together to form your  master budget .  

Businesses that rely heavily on seasonal sales revenue serve as a good example of why a budget is so important. If the months of June, July, August, and December typically generate 75 percent of your business' revenue, your budget allows you to plan ahead    so that you'll have the best strategy for distributing that revenue most effectively over the course of a full fiscal year. 

Planning also should account for long-term needs. For example, if you anticipate a large expenditure one or two years down the road for computer upgrades, it's a good idea to start budgeting for that expense in advance.  

In addition to being an important part of the planning process, budgets are necessary for  evaluating the performance  of your company over the course of the fiscal year. Part of budgeting responsibly is tracking actual revenue and expenses and comparing them to what was budgeted. Budgets help to assure that your business is sticking to its plans and offer an important means of identifying problems and opportunities.    

For example, if sales in the first quarter are lower than what you budgeted, you'll know that you are likely to have to find expenses to cut later in the fiscal year in order to stay profitable. A more positive example might be sales of a new product that exceed expectations. By tracking this trend and comparing it to what was budgeted, you'll know you have the additional revenue to perhaps revise the budget with plans to increase production or hire additional staff to handle the extra business.  

A history of producing sound, detailed budgets and sticking to them can help show lenders or potential investors that you know how to develop a business plan and make it work. Lenders and investors certainly will want to investigate your finances and history in detail, but if they don't see evidence of strong budgeting practices, that may be enough of a red flag to turn them away.  

If you are opening a new business and have little or no history, you need to compensate for that lack of a track record with detailed support for your budget. This means undertaking research into the marketplace and showing how past trends or perhaps a void in the industry supports the numbers you are presenting. This kind of attention to detail can help you gain serious consideration from lenders or investors.  

Scenario planning is making assumptions on what the future is going to be and how your business environment will change over time in light of that future.    

More precisely, scenario planning is identifying a specific set of uncertainties, different “realities” of what might happen in the future of your business.  

It sounds simple, and possibly not worth the trouble or specific effort, however, building this set of assumptions is probably the best thing you can ever do to help guide your organization in the long term.  

For example, Farmers use scenarios to predict likely outcomes depending on if the harvest will be good or bad which may be driven by factors such as the weather and pests. It helps them forecast their sales but also their future investments. It also helps them to justify a bank lending them funds for the next harvest.
   

Military institutions use scenario planning in their operations to cope with any unlikely situations, anticipating the consequences of every event. In this case, scenario planning can mean the difference between life and death.    

Scenario planning might not have such dire consequences in your organization, but if not done, you risk opening the door to increased costs, increased risks, and missed opportunities.  

Essatto allows you to test your assumptions and visualise the impact of those assumptions both from an operational and financial  position .