Budgeting vs. Forecasting - What's the difference?

Posted on 21 Jun 2022

The key difference between a budget and a forecast is:

• a budget is usually for the next twelve months showing expected trading and results based on historical and expected results.
• A forecast is more comprehensive giving profitability plus a Balance Sheet and Cashflow requirements.

Do you need a budget and a forecast? Foundations for a good business budget This Xero guide shows what you need to create a small business budget and fortunately you probably have all these things in Xero already! Start by looking at your Profit & Loss report, Balance Sheet and Trial Balance. You want to be able to see all your income and all your expenses. When you have all this information you'll be able to build a budget that can tell you how much you:

• Spend running the business
• Can invest to improve the business
• Can pay yourself (and any shareholders)

Our approach at Monteck Carter is that a business budget should show your profitability. This will also give you possible tax costs based on profit. A forecast is usually a three-way document that gives you the above, plus Balance Sheet results and cashflow effects.? The cashflow report will give you a result based on timing of receipts and payments. Looking Forward In these current times when markets are changing rapidly, you may need to update your budget frequently - more than once a year so it bears some resemblance to current realities. A financial forecast is not static either. The forecasts we prepare for our clients can be updated as often as required, most often this is done annually and then we can measure actuals to forecast. If a business has challenges during the year and wishes to update a forecast then this is usually done in conjunction with a meeting with us. You know what you want. Do you know what it takes? Your forecast is the roadmap for your goals. Do you know what your business would look like ?if you lost your biggest client? What if your sales go up by 20%? Can you afford to take on a new employee? We are a team of experienced advisors and have helped many clients with their budgeting and forecasting requirements to meet their goals.? If you have a specific goal that wish to achieve, speak to our team who can help you put a plan together to achieve this goal.