The difference between the budget and forecast is that budget lays out the plan for business goals, while the forecast predicts the expectations for results.
And understanding this difference between a budget and forecast is key. It is the difference between driving your business forward or losing it. But there are some major differences between budgeting and forecasting that are important to distinguish.
The budget consists of a company’s financial position, cash flow and business goals. It’s a financial plan that considers incoming and outgoing cash flow, your revenues and costs. It’s great for outlining any expectations for what a company wants to achieve for a certain period, often these are restricted to one year at a time. A good business budget is more than just financial control, it’s a tool that managers can use to plan, and control already scares resources. A budget plan shows the company’s goals and objectives and how management intends to use and acquire resources to attain those goals.
Also, budgeting creates a baseline to compare actual results to determine how the results vary from the expected performance.
Forecasting is a decision-making tool that estimates a company’s future financial outcomes based on input data. Cash flow forecasting is important for a business, as it helps to review cash income before it anything goes wrong. Also, one can create multiple what-if analyses in forecasting in order to estimate various scenarios that might happen to the business. So for this, it is imperative that management forecasts what is going to happen to cash flow to make sure the business has enough cash to stay afloat.
So, the key difference between a budget and a forecast is that the budget is a plan for where a business wants to go, while a forecast is an indication of where it is actually going.
But budgeting can sometimes contain goals that may not be attainable due to market conditions, while forecasting can help to predict the conditions. Thus, budgeting and financial forecasting should work in tandem with each other.