Budgeting and forecasting assist senior managers in formulating strategies, planning for the future, and streamlining their goals.
Fremont, CA: Budgeting and forecasting are vital components of any company's business cycle, particularly during rapid growth periods. Although budgeting and forecasting are similar, there are a few key differences that set them apart. Finance leaders need to understand these differences to prioritize what's essential and deploy their resources accordingly. Some organizations can even go as far as assigning budgeting and forecasting to different teams to keep a clear focus on each process.
The Difference Between Budgeting and Forecasting
Budgeting is figuring out the money a company will have to spend over a given period to achieve its desired business results. On the other hand, forecasting is the process of proactively analyzing the budget and utilizing traditional and real-time data to forecast what those business results are expected to be like.
In simple words, the budget is a road map, highlighting the critical financial checkpoints for every phase of the business journey. But once that journey begins, circumstances can change, ultimately outdating the original assumptions that were made when the budget was first created. As far as proactive finance teams are concerned, best practices include regularly reviewing the company's budget plans against the altering business environment, forecasting accordingly to make out where the numbers are headed, and adapting as needed.
[vendor_logo_first]Benefits of Budgeting
1. The budgeting process bounds the management to take a hard look at all of its financial activities and assess every personal expense's viability.
2. Budgeting demands detailed documentation of all the sources and cash uses, which allows management to anticipate cash flows with accuracy.
3. Since budgeting generally begins from the bottom up, many employees are engaged in the process. This instills a sense of ownership within the employees, who are then motivated to meet their budgeted goals.
Benefits of Forecasting
1. Accurate forecasts of revenues and expenses allow the management to adjust the company's direction if the forecasted trends justify the action.
2. Being aware of where the future expenses are likely to fluctuate makes it easier to manage the cash flows and capital needs.
3. Management can capitalize on financing and investment opportunities if they present accurate and reliable forecasts to the investors.
The role of budgeting and forecasting in the business world cannot be overstated. Budgeting enables management to set goals for the future, and forecasting provides the finance teams with actionable insight. Both are important and complementary.
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