In the business world it is important to have financial projection, since it allows us to prevent commercial and economic declines. So it is natural that we hear about budget and financial forecast, but the truth is that these are very different. For that reason we will explain in this article, what is the importance of financial forecast and budget as well as their differences.
What is Financial Forecasting?
The financial forecast is the future projections of the behavior of business institutions, usually in the realm of sales or profit. Forecasts can be applied for the short, medium and long term taking into account the areas in which they are generated. For example, financial crisis or situation of a company that makes a certain investment or that makes changes in logistics and production.
They are predictions not necessarily facts that are checked, but it is a very useful way to prepare the institution of possible contingencies and unforeseen events. On the other hand, financial forecasting equips the board of directors with knowledge to create business strategies and make sound decisions.
What is Financial Budgeting?
The financial budget in the amount of money to be calculated to deal with the general outlays of everyday life or a business. In other words, it is the anticipated calculation of income and expenses that will exist in the future in a short, medium or long term established period.
In the case of companies, the goal of a budget is ensure that no more is spent than is generated in sales or production. In many cases it will be necessary to make adjustments that must be carried in an accounting report called “cash budget”.
The budget is used to allocate money for specific purposes, they are the objectives that companies set to meet an end.
Differences between financial forecasting and budgets
Next, we will show you the differences between financial forecasting and budgets, since this way you will achieve an understanding of the two.
- Budget is the economic plan stated in numerical terms, prepared by management in advance for a specified period.
- The prognosis consists of the valuation of trends and long-term results, based on past and present data.
- The financial projection allows evaluating events or trends in business, on current business conditions.
- The budgets is the expression of how much money will be contributed to investment.
- When you set a forecast you don’t set a specific goal.
- When making a budget goal is set, since this will be used to generate an income.
- The annual or quarterly update of a budget is made due to the change that a product or investment undergoes in the market.
- The forecast has update intervals.
Importance of financial forecasting and budgets
- Importance of Financial Forecasting.
- The company can evaluate the future behavior of a project and the time it will take.
- The forecast in the company will help to determine if there will be a need to acquire new facilities, production, raw material resources and workers.
- Better control of production and sales strategies that are generated.
- Address any eventuality that causes a business decline.
- Importance of the Budget in finances.
- By having a budget you can better control income and expenses in a certain period.
- The budget allows to adjust to reality so as not to generate more expense than income.
- For a company, the budget is essential to be able to face a possible financial problem.
- If there is no serious budget management, the company would suffer a considerable fall.
- Have a budget significantly reduces business uncertainty.
- In general, having a good budget means being able to more effectively meet the needs of a company.
So far we have been able understand what a budget and financial forecast is as its importance as the differences that exist between both. And also how important it is to keep these details in mind, that they will teach us how to better manage our company, venture or business.
We hope that this article will expand your knowledge or help you answer your questions regarding accounting terms, the miracomosehace.com portal will provide you with more financial content.