Proper budgeting and forecasting help businesses and organizations control costs, allocate resources effectively, and stay aligned with their strategic objectives.
The problem is that most organisations and businesses still use outdated methods, such as spreadsheet-only forecasting, which can be ineffective.
To overcome that, you should use progressive methods that are more flexible and effective.
In this guide, we'll discuss various budget forecasting methods and the best software to help you budget and forecast accurately.
Budget forecasting is the financial management process of estimating a business’s or organization's future financial needs for a specific period using historical data, anticipated activities, trends, and strategic priorities.
Organizations and businesses carry out the process for one fiscal year or longer to predict revenues, expenses, and cash flow.
Here's why budget forecasting matters:
Budgeting and forecasting are closely related practices. They serve different but complementary purposes in financial management.
Budgeting is the process of creating a sound financial plan for a specific period, typically a fiscal year.
A budget outlines your expected income in the form of grants, donations, and earned revenue. It also includes nonprofit expense categories spread across program, administrative, and fundraising functions.
For example, your nonprofit might budget for $350,000 in expected annual donations for the upcoming year based on the fundraising plans and outcomes of the previous years.
On the other hand, forecasting is a continuous process of updating financial expectations based on real-time data and emerging trends.
It helps your organization adjust its financial outlook as situations change.
For example, you may experience a surge in online giving in the middle of the year. This surge could mean revising your forecast to $400,000 in annual donations instead of the originally budgeted $350,000.
Here's why the two work better together:
If you are using a collaborative, cloud-based financial management platform, both budgeting and forecasting become easier and more dynamic.
Your teams can work together in real time, access the latest financial data, and respond proactively to changes to promote better impact.
Budget forecasting isn’t a one-size-fits-all process. It needs to be tailored to your specific requirements and complexity.
Let's go over some of the most common techniques to apply:
A static budget forecast is a one-time projection based on your annual budget, which is usually set at the beginning of the year and isn't updated.
Ideal for organizations with stable funding and predictable expenses, static forecasting doesn't adapt well to change.
You can use a dedicated financial management tool with real-time dashboards to track actual performance against the forecast.
A rolling forecast is one that you update on a continuous weekly, monthly, or quarterly basis to reflect the most recent financial trends and data.
These forecasts are ideal for nonprofits with seasonal funding or businesses with unpredictable cash flow.
The right budget forecasting tool can help you automatically sync data to make updates quickly and accurately.
In this method, each period starts from zero, and every expense is justified. You don't carry anything over automatically.
This method is ideal if you are undergoing a strategic shift, cutting costs, or evaluating the ROI of your programs.
You can build your forecasts around key drivers, such as the number of beneficiaries you serve, fundraising events you hold, or staff hours, in addition to past financials.
Ideal for impact-focused organizations that want to tie financials to outcomes, the method helps connect budget decisions to mission delivery.
You can integrate your financial management tool with your accounting platform, program systems, or HR software to ensure driver data, like staffing levels, remains current.
Speaking of the right financial management tool, Martus can make these methods more effective by streamlining updates, syncing data sources, and keeping your teams aligned in real-time.
Martus helps you budget collaboratively based on historical data, the preceding year's budget, or starting from scratch.
Martus also helps you with forecasting in three key ways:
Streamline your budget forecasting process with Martus now.
Even when you apply the right budget forecasting techniques, your forecasts may be inaccurate and unreliable.
Let's do a quick overview of the aspects that can influence how accurate your results are:
Instead of using outdated and outgrown spreadsheets for budgeting, it's best to use a cloud-based platform to mitigate these challenges.
As a cloud-based nonprofit financial management platform, Martus solves these challenges through:
You must choose the correct budget forecasting method based on your organization's size, goals, and structure to ensure these factors won’t jeopardize the accuracy of your forecasts.
Here’s a simple decision framework to guide your choice:
As a nonprofit, prioritize methods that support grant or donor tracking, program impact tracking, and mission alignment.
Driver-based and zero-based forecasting can help you connect your expenditure to outcomes.
If you are a small to medium-sized business (SMB), use flexible methods that make it easy to adapt your forecasts as your business grows and cash flow changes.
Rolling forecasts will be ideal for staying agile in times of rapid change.
Use static forecasting if your budget is small and revenue is steady.
A larger or more dynamic budget can do well with driver-based and rolling forecast methods, which allow you to respond to changes in real-time.
If your organisation is in an early stage, start with a static or zero-based budget for simplicity and to establish discipline.
A growing or multi-program organisation can change to rolling or driver-based forecasting to stay strategic and responsive.
Even as a well-meaning organisation, you can run into trouble with budget forecasting if you fall into these common traps:
The good news is that the right modern financial management platform can help you manage these risks. You can enjoy real-time updates, cross-functional collaboration, and support for dynamic, flexible forecasting methods.
Here are answers to common questions about budget forecasting for further information:
When selecting budget forecasting software, you’ll want to consider the features below to make the right decision:
You can update your budget forecasts on a weekly, monthly, or quarterly time frame.
The best approach is to update them as soon as significant changes occur, ensuring they remain aligned with the current reality.
As of now, you can't automate budget forecasting completely. The automation spectrum includes analyzing data, predicting trends, and generating scenarios.
Human judgment, strategic oversight, and interpretation of AI-generated insights are still critical for optimal results and decision-making.
Inflation reduces the accuracy of budget forecasting because it introduces unpredictability into the prices of goods and services, making it difficult to forecast future costs accurately.
Your budget forecasts must include and anticipate price changes, especially for long-term projects or programs. You must also update them regularly to maintain relevance.
Applying forward-looking budget forecasting methods can help you achieve financial clarity and mission impact more smoothly. The correct method allows your teams to collaborate in real-time, sync data automatically, and reduce manual tasks.
To simplify things further, you’ll need a robust financial management software solution that supports various forecasting methods. This capability provides a strategic advantage, enabling your organization or business to stay focused, agile, and impact-driven.
Martus offers modern solutions like collaborative budgeting and forecasting, AI-driven insights, dynamic reforecasting, and automatic data pulls from your integrated accounting systems.
Gain financial clarity and transform your budget forecasting practices — get started with Martus today.