Be it a budgeting tools or financial forecasting, both are the vital most techniques used in financial planning. It helps business personnel in making the correct financial decisions.
Budgeting helps in providing the total amount that is needed for quantifying the revenue expectations, which a business has to achieve in the future.
Through this article we will try to acquaint you and provide you the detailed information about financial forecasting and budgeting tools. All those who owns a small or medium scale business must know how budgeting and forecasting plays the major role. These two proves to be the vital most financial functions for the business of any type.
There are people who believe that budgeting and forecasting are one and the same thing, but let me correct that it is not. Let’s determine, what are the differences between the budgeting and forecasting and how can such aspects help you to grow the business.
What is Forecasting
Forecast is basically an idea, defining what is going to happen at higher level, specifically related to the overall expenses and key revenue items. Depending upon the time horizons, forecast could be done for short term or long term. It could be either bottom-up or top-down.
Forecasts as a Control Tool
Consider following things, while you do the forecasts for your business/company:
- Try to use three forecast instead of one, one reflecting the optimistic outlook, one with the pessimistic and the third one to be a nominal kind of. By doing this you can easily plan your growth and can also do the adjustments if some of the opportunities doesn’t get materialized or their pace is slower than to what was planned originally
- Keep updating the forecast done by you on regular basis
- Get the managers from operations and sales involved in the forecast, because these people are aware of the ground reality. It will help you to get the better and clear information and the managers too will remain engaged in the process
What is Budget
Budget is defined as the financial outline based upon what the firm assumes will happen financially, over a certain period of time. Details such as revenues and expenses of the company, it’s financial and cash flow positions are stated in the budget. You can get this information from the financial reports of your business.
When it comes to small scale organisations, the owner either alone or by taking the help or assistance of some key employees do the budgeting. Time taken and the process of budgeting in such cases is less as compared to others. Budgets are mostly static and planned for the fiscal year of the company. Some of the organisations still make use of the constant budget, based upon the changing conditions of the business. This will add the efficiency but close concentration will also be needed and better outcomes too are not ensured.
Budget as a Control Tool
Budget is ideally used as the management tool that is needed to run a business. Budgeted amount is compared with the actual financial amount and the variance is analysed.
- Do the realistic projection of cash flow. Revenue forecast will effect this but it couldn’t be fully materialized. Be conservative here
- Know the difference between the essential expenses such as internet and electricity and the expenses that are discretionary and not so import to run the business. These factors may vary business to business
- Get the debt reduction added to the budget, if there is any
- Try incorporating the cash reserves in the budget, so that the extra profits, if any, can be used against any downturn in future for your business
Budgeting is a proper financial planning done for the future commercial activities by an organization whereas, forecasts is like an indicator depicting the future discharge and flow of your business organisation.
AccountingHub QuickBooks Enterprise Support team can come to your help, in having the better understanding of these two tools. You can call our QuickBooks technical support helpdesk team if there is something that you were unable to understand. Call QuickBooks Pro Support team by dialing out Quickbooks Support Phone Number 1844-313-4856.