 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 in- house 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.