The difference between a budget and a forecast

Budget

A budget is a financial plan, derived based on where you want your business to go. It shows the financial position of the business and the cash flows – and by estimating the future expenses and revenues you can specify the goals you wish to achieve.

A budget is often set periodically, such as every year, and forms the basis for comparing actual results and evaluate how well the business is performing.

Forecast

A forecast is an estimate of what will actually be achieved. Financial forecasting allows management to anticipate results by analysing historical financial data.

It is typically limited to major revenue and expense lines – and although cash flow may be forecasted, there is usually no forecast for financial position.

A forecast is typically updated on regular intervals, such as quarterly or monthly in order to incorporate real-time data and changes in circumstances.

Summary

In summary, a budget is an outline of the desired direction of the business, whereas the forecast is a report illustrating whether the entity is reaching its goals – and where the business is heading in the future.

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