Budgeting Vs Financial Forecasting: What Is The Difference?

Budgeting Vs Financial Forecasting: What Is The Difference?

Account Ability

Businesses use budgeting and financial forecasting to make informed decisions about how to best allocate resources and reach their goals. However, although the concepts of budgeting and forecasting are often used interchangeably, they’re not synonymous.

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This article examines the differences between budgeting and financial forecasting and looks into software tools that integrate both functions.

Understanding Budgeting and Financial Forecasting

A budget materialises company expectations regarding its expenditures and performance during a specific period of time. Some of the key aspects quantified in a budget include sales plan and revenues, expenses, overheads, cash flow, CapEx and debt reduction where applicable.

On the other hand, financial forecasting estimates how the company will perform in the future on the basis of the current budget and in-year performance. Financial forecasting can also help determine what corrective action is needed in order to adhere to the budget.

Key Differences

A budget is a plan that outlines the direction a company wants to take based on certain financial resources and commitments. A forecast is a report that looks back into a company’s historical and in-year performance, and then uses that information to anticipate future results.

Unlike budgeting, financial forecasting isn’t just limited to a fiscal year, and can be used to estimate financial outcomes beyond the budget period.

Also, budgets are relatively static, whereas financial forecasts are inherently dynamic. For example, unexpected market conditions can interfere with attaining the goals outlined in a budget, and yet budgets shouldn’t be altered once set.

What can be altered are financial forecasts. Once performance is evaluated against the budget, re-forecasts must be carried out on a regular basis to determine whether corrective action is needed. More and more companies are adopting the process of ‘rolling 18-month forecasts’ performed every Quarter, and a process of ‘accountability review’ with business unit managers as a means of keeping performance on track.

Budgeting and Forecasting Accounting Software

Because both budgeting and forecasting are essential to financial operations, companies invest in dedicated software that can improve the accuracy and efficiency of these tasks. You can acquire budgeting software and financial forecasting software separately, but integrated solutions can take these activities to a new level and improve overall performance. It all depends on the software you choose and who supports you during the adaptation process.

Here’s what you can expect from integrated budgeting and forecasting software like Corporate Planning:

1) Unparalleled know-how: In many cases, financial forecasting software needs the support of IT professionals who are under pressure with other tasks and don’t have a good grasp of what a finance department needs. By contrast, at Account-Ability we have an implementation path created by finance experts for finance experts.

2) Prompt implementation and speedy changes: Our software is a self-serve solution. Forget about waiting months until full roll-out is complete and forget about endless delays whenever you need to make changes or adjustments.

3) Personal attention: With Account-Ability, your company is not just a client number. We purposely keep our consultancy personalised so we can devote all our expertise to your needs and offer a single point of contact throughout.

What Next?

Contact our team to find out how our multi-function business platform can streamline all aspects of financial planning, including budgeting and forecasting.

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