What are budgeting and financial forecasting?
Often being linked together to outline a financial plan, both budgeting and forecasting will encourage you to think about your business model in detail and how any changes will impact you.
Your budget typically includes information about your company’s income, expenses, cash flow, and financial position. It is often prepared a year ahead and stays unchanged.
A financial forecast is a detailed projection of what will happen, normally including key revenue items and overall expenses, but it differs from a budget in that it can be done at various periods. A long-term forecast may span several years and be included in your business plan. Short-term forecasts are mostly done for operational purposes and can be for a week at a time when a business is having cash flow issues.
Why are budgeting and forecasting important?
Budgeting and forecasting are often used for determining and setting out a company’s short- and long-term financial goals. Budgeting services can be used to detail how a business plan is carried out on a month-to-month basis and how you can achieve your financial goals within your budget.
Forecasting is also extremely important as it utilises historical data and current market conditions to make predictions on how much revenue a company can expect to make over the next few months or years.
Forecasts can be altered as new information becomes available and informs key financial decisions. Both are vital parts of your overall success as understanding more about your business and finances will help you react accordingly to the changing business landscape.
If you’re looking to get external funding for your business from lenders or investors, having a forecast will be very beneficial. This is because it clearly shows the profitability of the business and the return on investment it can offer them. Also, for internal purposes, accurate forecasting helps you set achievable goals and budget accordingly.
What is the difference between budget and forecast?
Despite being very similar, the main difference between a budget and a forecast is their purpose. A budget is used to represent what you want to happen with your business. Whereas, a forecast will give you an insight into what will actually happen and the direction the business is going.
How we can help you
Jan McDermott Chartered Accountants specialise in all areas of accountancy and tax support for businesses, including budgeting and financial forecasting services. We can help you prepare your budgets and forecasts as well as provide continuous advice to ensure you stay on track to meet the goals you want to achieve. By letting us use our expertise to help with your budget and forecasting you can be assured that you have realistic and achievable financial targets in place without the stress of trying to go too high too quickly.
Get in touch with our specialists today to take control of your budgeting and forecasting.
Frequently Asked Questions
Budgets should always be as detailed and thorough as possible. Generally, your budget should contain the following data:
- All planned revenue – including types of revenue, the value of it, and when to expect it.
- Fixed costs for the business – such as employee salaries, rent, utilities, insurance, property taxes, etc.
- Variable costs – such as supplies, travel and vehicle costs, professional services, maintenance, etc.
If you don’t have a lot of knowledge or experience in this area it can be tempting to jump straight into creating a budget first. However, without a forecast you would end up spending resources on endeavours that aren’t aligned with your ultimate business financial goals. Therefore, it would be better to start with a forecast. When you have a realistic financial projection in place, you can create a budget that will meet your various goals.
When a business forms a financial forecast report, it will organise a time frame for the forecast and then collect all the previous financial documents required around the time period. The report will document, monitor, and analyse crucial data like cash flow, income statements, and balance sheets.
They provide us with a fully outsourced finance function so that our own team can focus on our business. They implemented Xero software from day one of the company meaning that we have real-time visibility of our business at all times, The monthly management accounts meetings we have with Jan really add value to decision-making and strategic planning and we wouldn’t be without them.
Their professionalism, expertise and client care are outstanding and they have supported our growing business no end. They look after everything from our bookkeeping, VAT, annual accounts, as well as claiming Research & Development tax relief, preparing budgets and forecasts and assisting with grant claims. The whole team are always responsive, friendly and reliable and we wouldn’t hesitate to recommend them to anyone looking for a trustworthy and efficient firm to look after their business finance requirements.
I moved my accounts over to Jan at the beginning of the year and have been extremely impressed with her attention to detail and precision. She’s made it easy for me to understand and manage all the key aspects of my accountancy, as well as offering useful suggestions of ways to improve and make things work more efficiently for me and my business. I’d highly recommend Jan and her team to anyone looking for professional, friendly, and reliable accountants that truly get to know you and offer a tailored service.”
Jan McDermott & Co have been our accountants for over 15 years and have not only ensured our accounting records are accurate and legal, but also provided us with first class advice to help us grow. They recommended our move to Xero accounting software which has revolutionised our business, allowing us to create predictable income through the use of Go Cardless Direct Debits, and streamlining our day to day accounting operations. Jan and her team are friendly, easy to work with and take time to understand a particular problem or situation. I wouldn’t hesitate to recommend them to any business that wants an accountancy firm they can grow with and depend on.