Is budgeting or forecasting better for your business?
You come up against decisions constantly as a business owner. When it comes to keeping your finances looking healthy, you might be tempted to choose a budget or a forecast to save you time and energy tracking both. In this blog, we’re going to explore which is more important, and how each will impact your operations and bottom line.
What is, and why do you need, a budget?
In the words of Futrli CEO & Founder Hannah Dawson:
- A business budget provides a blueprint for your company’s desired success, and an accurate measure of how it is performing, year-by-year
- Budgeting is the starting point for (what we believe to be) an even more important measure of success, your cash flow forecast; a vital piece of financial scenario planning for any company.
Budgeting ensures that you always have enough money for the things you need. It shows where you intend to go with your company, but are often quite rigid. It’s a static point A to point B direction. A baseline for comparison between actuals, it’s a really important part of your business planning, so check up on it and your progress regularly.
What is, and why do you need, a forecast?
- A business forecast is all about now. It can be referred to and relied upon to help make business and operational decisions, eg staffing adjustments.
- It’s a real-time log of your activities, which allows you to make business decisions with confidence.
Likewise to the budget, you need a forecast when running your business. The core difference is your forecast updates in real-time. Your forecast helps you navigate past obstacles, as you’re armed with constantly updating financial information about your business.
So, which is better – a budget or forecast?
We strongly advise you use both. This is because, simply, budgeting lays out your plan for where you want your business to go, while forecasting shows where your business is actually headed.
They’re as important as each other, so don’t ignore either one. We can’t stress how critical to your business’ growth and wellbeing to set up both straight away – even if you’re at startup level.
Both budgets and forecasts are important because they take different roles in your planning. “While budgeting and forecasting are different functions, they are not mutually exclusive of each other. In fact, a good forecast feeds the development of a sound budget,” writes QuickBooks Online. Setting up your planning, you’ll find working out your budget first will allow you to form a great forecast.