It may sound technical, but in fact it’s just your ‘most likely scenario’ when predicting the future of your finances.
What is forecasting?įorecasting is used to predict your future financial position using the information you currently have available to drive your forecast. So your budget defines the size of the money pot at your disposal, giving you a benchmark figure to work against over the course of the business period you’re planning for. They can already see if they have the ability to cope with the change but also the budget becomes the basis for the ‘what-if scenario’ they need to model. Jonathan Bareham, co-founder and Director of London-based cloud accountants, Raedan, believes that, “ Things move quickly in a small business, the ones that at least have a budget in place can react more quickly and confidently. It’s typically an annual process (although it can be done quarterly), and it’s your chance to set targets for revenue and expenditure across each department, team or cost centre in the business.īy fixing the period you’re budgeting for, you can control and manage spending against your targets, and you provide a clear way to keep the wider team, shareholders and other stakeholders aware of the money that’s available for each area of the company. In essence, your budget is the annual financial plan you create to set up your goals, aspirations and route map for the year ahead. It’s generally done at the beginning of a period and those numbers will be locked down and used as base comparisons across the course of the forthcoming period.
What is budgeting?īudgeting is used to control your spend as a business and to set base targets. During the year, you also need to produce meaningful forecasts of your cashflow, income, costs and profits, to monitor performance and maintain an ongoing picture of your finances.īy using data from your historic actuals, industry experience of your markets and setting revenue goals defined by the requirements of your overall business strategy, you can build a better picture of what the future pathway of the business will be.īut to do this effectively it’s important to understand the difference between the core areas of budgeting, forecasting and scenario-planning. Revealing your financial futureĪt the start of the business year, you need to plan out your revenue goals for the year and set aside defined budgets for expenditure. In this post, we guide you through the key differences between budgeting, financial forecasting and scenario-planning, and explain how combining them together with the right data gives you the most accurate and robust insight into your financial future. Rather than just focusing on the day-to-day elements of your company’s finances, ambitious businesses will look to create a financial plan for the coming year, so the management team know where they’re going and how they’re going to get there.īut when it comes to budgeting, forecasting and building up future scenarios, there can sometimes be confusion around what these terms means – and how you each of them has a very specific part to play in helping you see the financial path of the business
Planning ahead for your financial future is a key part of setting solid foundations for your business.