Lesson Summary

Welcome to our lecture series on budgeting and forecasting.
This series is designed to guide professionals in financial planning and analysis (FP&A) through the principles of developing both near-term and long-term operating plans. A solid understanding of financial statements is foundational to this process.

We will cover:

• Income Statement – Including revenue, costs, EBITDA, and net income
• Cash Flow Statement – Tracking inflows and outflows from operating, investing, and financing activities
• Balance Sheet – Reviewing assets, liabilities, and equity

Once we’ve reviewed the financial statements, we will explore forecasting methods, such as top-down and bottom-up approaches used to project revenue, costs, expenses, and cash flow.

With these fundamentals in place, we will move into the process of building an annual budget using historical trends and business insights.

What is a Budget?

A budget is an approved financial forecast that guides operations over a specific time period. It serves as a benchmark for performance and decision-making during that timeframe.

Budgets are typically:

• Aligned with strategic goals
• Approved by management and key stakeholders
• Developed collaboratively by FP&A teams, department leads, and executives

Why Is a Budget Important?

• Sets clear short-term and long-term goals
• Defines success metrics such as profitability and growth
• Serves as a performance benchmark
• Enforces financial discipline and spending control

Key Components of a Budget:

• Revenue – The top line of the income statement and a critical driver of performance
• Cost of Sales – Direct costs associated with delivering products or services
• Operating Expenses – Includes both workforce and non-workforce costs that affect net income
• Cash – Tracks available cash and forecasts future cash flow for financial health monitoring

With this foundation, you're now ready to begin your journey into effective budgeting and forecasting.