Budgeting & Forecasting

The Difference Between Budgeting And Forecasting

Budgeting and forecasting are both vital components of a successful financial plan. The two are often used together to determine where a business is hoping to go as well as whether or not they are headed in the right direction.

Budgeting

Though most business owners understand what a budget is, let’s do a little review. A budget outlines what the financial expectations are of the company within a particular period of time. Generally, budgets are laid out for an entire year, but they could also be quarterly.

A budget generally includes:

  • Cash flow projections
  • Estimated revenue and expenses
  • Debt reduction
  • Cash reserves 

Forecasting

Forecasting uses historical financial data to estimate a company’s monetary outcomes in the future. This is helpful in anticipating future results based on trends in the past. Some businesses may benefit from a long-term forecast that projects future finances over the course of several years. Short-term forecasting is typically used for more operational purposes to drive production planning, inventory levels, and more.

Budgeting

Though most business owners understand what a budget is, let’s do a little review. A budget outlines what the financial expectations are of the company within a particular period of time. Generally, budgets are laid out for an entire year, but they could also be quarterly.

A budget generally includes:

  • Cash flow projections
  • Estimated revenue and expenses
  • Debt reduction
  • Cash reserves 

Forecasting

Forecasting uses historical financial data to estimate a company’s monetary outcomes in the future. This is helpful in anticipating future results based on trends in the past. Some businesses may benefit from a long-term forecast that projects future finances over the course of several years. Short-term forecasting is typically used for more operational purposes to drive production planning, inventory levels, and more.

How Budgeting and Forecasting Work Together

With a Strategic Business Plan, you can predict future problems and possibly prevent them altogether. You gain valuable perspective that may contribute to the success of your company and allow you to secure the funding you need.

Contact 4Corner Today

One of the most essential aspects of operating a business is creating a sound budget and accurate financial forecast. If you need assistance in budgeting and forecasting for your business, contact 4Corner today for a free consultation.