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
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