The difference between budgets and forecasting
A budget is an item that should be prepared annually and give you a broad overview of what you expect out of your business and where you want to go.
Forecasting allows your business to
Measure your firm's actual results against where you said you wanted to be. It is a tool where you can look to repeat your successes and not make the same mistakes next year.
Give you a roadmap of what your upcoming liabilities for the year will be perhaps a balloon payment is due on a loan in August
Rethink your business practices - Is this cash outlay really vital to my operation, or would I rather have that money still in the bank
Give you more power in negotiating - "I'd love to do this, but my budget is $x amount and you're charging y"
Budgets allows your business to
A forecast is a more narrowly defined item that says this is my expectation of what is going to happen, where I am right now.
Business Budgets & Forecasting
Another way to look at it is this year's budget is made in late November or December last year and averages out the hills and valleys throughout the year, while a forecast is a revised budget made in late May looking into June and takes into effect knowledge of current conditions that wasn't known late last year.
Your accountant needs to be asking you about your business budgets and forecasts. This is where GJW Accounting & Tax Service will set themselves apart, we know most accounants don't bring this topic up to their cleints, we think it is vital to your success though.
Financial statements are an excellent tool for looking back, but you also need to have tools to look towards the future. Not asking you about budgeting or forecasting is like a doctor not asking you about your family medical history. A yearly physical can tell you what shape you are in now, and your medical records can tell the doctor your history, but without a family medical history the doctor has no guide as to what the future might bring.
Review your budget every month or quarter
Adjust your budget to current conditions, such as a rise in the cost of materials of 30% since your budget was last reassessed
Plan for preseason and clearance discounts well ahead of time
Identify business trends more quickly
Project your cash flow over the near term
Remember, the smaller the business the more important budgeting and forecasting are to your business. A gut feeling often works, but these tools give you the infomation and knowledge to back up that feeling.