They are often linked together but they’re different. Budgeting and forecasting will make you think about your business model and how if something changes what impact this will have on you

What is Budgeting?

The budget includes details about the company’s income, expenses, cash flow and financial position and is often prepared for a year and remains unchanged.

What is Financial Forecasting?

A forecast is a high-level projection of what will happen, often just key revenue items and overall expenses. Forecasts can be done for different periods.

A long-term forecast might cover several years and be included in your business plan. Short-term forecasts are generally done for operational reasons and can be for a week at a time when a business is experiencing cash flow problems.

We can help you prepare your budgets and forecasts but once you’ve prepared them what can you get from them to help manage your business? We can review them with you and advise on:

• Are you going to make a profit? And if so, is the projected profit a reasonable return?
• • Do you need outside finance? If so, how much and what sort of finance? Equity or debt?
  • Does the strategy look reasonable?
  • What happens if your turnover falls by 10%? What happens if your turnover increases by 10%?

It is critical you constantly review your actual performance against budget. Variances need to be built into your forecasts so you can identify if you need extra staff or stock. Will additional sales create a cash flow problem?

Understanding more about your business will help you react to the changing business environment.