Budgeting and Forecasting

Budgeting and financial forecasting are financial planning techniques that help business personnel in the decision-making process. A budget estimates the amount of revenues and expenses a company may incur over a future period. Budgeting represents a business’ financial position, cash flows, and goals.

Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. Budgeting is simply balancing your expenses with your income.

Forecasting is another financial tool commonly used to help determine the financial status of a company. The meaning of financial forecasting is quite different from that of budgeting. Where the budget is used as a financial planner, the forecast uses this plan and compares it to the current financial direction of the company. They do this to predict where the company will end up by the end of that year. In other words, the forecast is used to see if the company will meet or exceed the expectations from the budget allowing the managers and controllers to set future goals. They also use forecasts to identify trends that are used to grade the company’s financial position.