Budget and Financial Forecast
Budget and Financial Forecast are the techniques that help in financial planning and in decision making process. A Budget approximates the revenues and expenses that a business may incur in future. Financial Forecast, on the other hand, refers to estimating the revenues that can be achieved by a business on the basis of its historical performance. A Budget is like a plan that indicates where a business wants to go while Financial Forecast reveals where the business is actually going.
A Budget shows the business cash flows, financial position and aims. This helps a business to create a paradigm for comparing the expected performance with the actual results. A Financial Forecast helps a business to plan on end results based on the foregone financial data. A budget is usually re-evaluated once per financial year, where as the Financial Forecasts are updated regularly.
Which one is better?
Among the two techniques, Financial Forecast is a more useful technique as it gives the management a short-term analysis of the actual business circumstances. Whereas, the process of Budgeting contains various goals that may or may not be attained due to a number of reasons, such as the changing market conditions. Based on the Financial Forecasts, the management can take immediate steps required.
