Director RLTP Limited
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The Difference: Budgeting & Financial Forecasting

22nd Oct 2021
Director RLTP Limited
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Budgeting and financial forecasting often come hand in hand when it comes to the financial management, development and direction of a business. These two services are paramount, especially if you have a small or startup company. Despite the fact that budgeting and forecasting are often used together, there are still some distinct differences between the two concepts.

What does it mean to budget?

In short, budgeting is an outline of expectations that’ll help a business to grow and develop financially. It’s a plan that’ll ensure revenue and profit goals are met or even exceeded to enable continued success. A budget is usually followed over a set period of time - typically one year.

There are numerous characteristics of budgeting and they include the following:

  • Estimates of expenses and revenues
  • Projected cash flows
  • Expected debt reduction

A business’ budget is periodically re-evaluated, often once per fiscal year, although this does depend on how management wants to update the information. Essentially, budgeting presents a baseline which can be compared to actual results and in turn, the business’ performance can be more accurately measured and recorded. These reports should be filed annually for a number of different reasons, including analysing performance levels from previous years.

Although budgets are drawn up on an annual basis, usually, these can be updated and adapted throughout the course of the year. Drawing up new plans once every twelve months is not a hard-and-fast rule.

What is financial forecasting?

Financial forecasting is essentially an estimate of a business’ projected financial outcomes. This is done by examining historical data and records and it allows management teams to predict subsequent results based purely on previous financial reports. Much like budgeting, financial forecasting have a number of different characteristics, including the following:

  • Determining how businesses allocate budgets for future needs and requirements
  • Won’t analyse the difference between actual performance and financial forecasts
  • Forecasts are kept regularly updated, usually on a monthly or quarterly basis, but only if there’s a change in business plans, inventory or operations
  • Long and short-term forecasts can be drawn up
  • Immediate action can be taken when financial forecasting is used by the management team

Financial forecasting can also be used to make any changes and adjustments to both inventory levels and production. Although a long-term financial forecast will help your management team to develop and update any business plans that might be in place.

Budgeting and financial forecasting services can be provided by the highly-qualified, fully-trained team of experts at RLTP Accountants. Operating throughout Leicester, Nottingham, Derby and the surrounding areas, you’ll always be able to look to them for specialist accountancy services that’ll help to ensure your continued success. RLTP Accountants endeavour to help SMEs and startup businesses, enabling you to grow and develop as a company, regardless of the industry you work in - for more information, get in touch with our knowledgeable, professional team today.

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