A budgeting forecast refers to the financial plan which shows in writing an entity’s financial and operating objectives and destiny, or goals for the specific time period, mostly on a fiscal year terms or basis. In order to minimize variances between the actual and expected expenditures, it is necessary to factor in such conditions for the budgeting process to be reliable. Budgeting forecasts allow the business entity to plan on how to utilize its resources in achieving both short term and long term goals. Examples of such conditions include Government regulations, weather conditions, war and political unrests. (Loren, 2009 p. 16-20)
WEATHER CONDITIONS: The weather conditions determine Agricultural output which is the backbone of every single economy. Stocks to be purchased and sold will vary according to climatic conditions. The amounts to include in the budgeting forecasts should factor in the expected changes on the sales and purchases volumes, for the budgeting forecasts to be reliable. Employee turnover may also vary due to the fact that the personnel will be looking for employers who are doing well at any particular economic cycle as per environmental conditions. Related staff turnover costs should also be considered when coming up with budgeting forecasts.
During the winter season, the company may incur snow shoveling costs that should be well calculated in advance and included in budget figures. The use of a company’s mission statement to develop the next years respective set of goals and objectives will also be influenced by the expected weather conditions at any expected fiscal year. Due to the varying weather conditions it is necessary to come up with strategies that will realize the planned objectives. GOVERNMENT REGULATIONS: The Government keeps changing the percentage of corporate tax payable annually.
Such unplanned changes on the corporate tax payable will influence the cash flows for any particular period. It will be necessary to consider the expected corporate tax for the period being budgeted for, so that the budgets will not vary much from the expected expenditure and cash inflows. Governments may at times impose price ceilings on particular products. This influences the sales level realized. Expected sales level constitutes the budgeted revenue receivable. So if the company can foresee future price ceilings, it should consider such changes when coming up with budget figures.
The law also determines minimum wages for skilled, semi skilled and unskilled workers in any state. Employee costs are part of human resource management and such expected changes on the minimum wages should be considered in budgeting forecasts, for the figures to be meaning full to all stakeholders. Government regulations affect the particular action and operation plans created to determine how the organization operates every specific program, output or services and any other necessary activities to be carried out in the coming financial year.
(Asay, 2007 p. 31-42) POLITICAL UNRESTS: Political instabilities affect stock market prices, which in turn determine the finances receivable to any particular business entity. Expected cash inflows will need to be adjusted for such occurrences. Due to such unrests, employees may be forced to migrate to safer grounds and this will have a major impact on an entity’s workforce. New hiring will be obvious and such costs need to be factored in the budgeting forecasts.
Prices for commodities are also influenced by political unrests and this determines expenditures on purchase and the sales volumes are also expected to change during the year. Particular action plans are needed to evaluate the coming year’s market and all this data is useful in budgeting forecasts. Wars also determine the level of confidence in the source of revenues or expected expenditures. Estimates should therefore factor in all environmental conditions for the budgeting forecasts to be meaningful to the unforeseeable future, because businesses are expected to be Going Concern entities.
Considering current environmental conditions that would impact the preparation of budgeting forecasts hence ensures that an entity’s profits are maximized at the lowest cost possible (Cole, 2008 p. 17-24) REFERENCES: Asay, R. (2007). Relationship between Environmental Conditions and Budgets. New York: Harcout and Brace. Cole, L. (2008). The Effects of Environmental Conditions on Budgeting Forecasts. London: Oxford UP Loren, S. (2009). Environmental Conditions That Would Impact Budget Forecasts. New York: Nerd Press.