What’s the difference between a budget and a forecast?

Business person/owner sat at a plain white desk with a newspaper, laptop, note pad, plants, clipboards, pens #business

Understanding the difference between a budget and a forecast is key. It’s the difference between driving your business where you want to be versus getting lost. But they aren’t the same thing. In fact, there are some major differences in their application and what they can do for your business.

They’re linked, but it’s important to distinguish the difference between a budget and a forecast?

Your budget gives you direction

A budget is where you want to go. It shows a business’ financial position, cash flows and its goals by estimating the amount of future revenue and expenses that may be incurred by the company.

Usually, the budget is only re-evaluated periodically. Perhaps once per year. It creates a baseline with which to compare actual results and evaluate performance.

The more accurately you can predict performance, the more certain you can be that you have used resources appropriately.

Your forecast gives you agility

A forecast helps you reach your desired goals. It shows you where your business is actually going and is responsive to change. The real-time data in your forecast helps you make great business decisions and achieve success.

Forecasts estimate by looking back at any historical data that you have. Update it frequently to show what is happening in the business right now, too. It’s the most recent data that’s the most relevant to keep you on track.

That’s why Futrli pulls in data from the cloud automatically, every day, to power your rolling forecasts.

Get the best out of your cash flow forecast

Collaborate with your management team and use forecasting to make any necessary adjustments to business operations and spending throughout the year, on a regular basis.

Plan for every outcome with several forecasts to reflect a range of outlooks (optimistic, pessimistic and most likely). For example, what will happen if that major investment you’re waiting on fails to materialise? How will you leverage a sudden spike in sales?

Prepare yourself for a number of eventualities so you’re able to move decisively. Capitalise on, or mitigate, whatever life throws at you.

Things change fast. A month is a long time in business. While the difference between a budget and a forecast are notable, use both to safeguard your business.

Share with