Understanding the difference between budgeting and forecasting is 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.
Budgeting and forecasting are linked, but it’s important to distinguish the differences.
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, and it creates a baseline with which to compare actual results and evaluate performance.
The more accurately you can predict your company’s performance, the more certain you can be that you have deployed your resources appropriately to achieve your goals.
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.
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 and capitalise on, or mitigate, whatever life wants to throw at you.
Things can change so fast and a month is a really long time in business. While budgeting and forecasting are different functions, they are linked, and a decent forecast will help create a sound budget.