Difference Between Budget and Forecast | What You Want And How to Get it!

Budget vs Forecast

Forecast! Budget! On reading the two, you might be wondering how are they similar and where are they different. The terms have been used interchangeably, but we know that there is always the difference between budget and forecast.

When you run a business, keeping on your focus intact on the two is essential, but you will be able to make wiser decisions when you understand the separate importance of each.


Which brings us to the key difference between budget and forecast.

Both the tools are put in use for the planning & grading of the company’s financial health.

Budgeting assists the company in making management plans. Forecasting tells the path chosen by the management to execute those plans.

Where budgeting sets the revenue expectations, forecasting determines the revenue that can be achieved.

Difference Between Budget and Forecast

Firstly, we will consider the essence of the budget in the business by listing down its characteristics:

  • If we talk in a layman’s words, then the budget is a full & detailed portrayal of the futuristic events, related to the financial position and cash flows. This is the main thing which the management wants to achieve over a period of time.
  • A budget is made once in a year, and after that, revisions are made to it, depending upon the business situations.
  • The budget always gets compared between the standard deviation and the actual deviation for a period.
  • If things go uncertain, then the management takes the necessary steps to bring changes to the budget.
  • The budget to actual comparison can trigger changes in performance-based compensation paid to employees.

On the contrary, a forecast is a gauge to determine what will actually be achieved in a period. Its characteristics are:

  • The forecast is majorly linked and limited to revenue and expense items. There is usually no forecast for a financial position, though cash flows may be forecasted.
  • It is updated on a regular basis, as per the business decisions, whether it is monthly or quarterly.
  • The forecast can be applied to adjustments in staffing, inventory management or to the production plan. This is can be for the long or short term.
  • Basically, the forecast is not matched to the actual results for the variance analysis.
  • Changes in the forecast do not impact performance-based compensation paid to employees.

As we have gone through the difference between budget and forecast, thus, it would be appropriate to say the budget is a plan that a business sticks to, while a forecast is an indication of where it is actually going.

Difference between budget and forecast – Implementation

There are various ways with which your company can forecast and budget their revenues. The two major ways in this are:

  • Manual
  • Cloud Accounting Software
  • With the help of bookkeepers

Difference between budget and forecast – Manual Implementation

  • This method involves using MS-Excel spreadsheets
  • The sheets are not intuitive; hence, all of the calculations and predictions are done by the user.
  • As it is a human activity, there is much room for error and risks.
  • Additionally, there is a complete lack of any expert assistance, apart from yourself

Difference between budget and forecast – Cloud Accounting Implementation

  • Cloud accounting software is intuitive, and their sole purpose is to bring efficiency.
  • You can effectively predict and upgrade your budgeting and forecasting as and when your business requirements fall.
  • You can revise and update the basis of your previous predictions, alterations in any quarter.
  • Can make decisions by analyzing real-time data.
  • The best thing is that your manual work will be gone with this application, as all will be taken care of the software.
  • Your data related to forecasting and budgeting will be under full security, and there will be a proper workflow to be followed.

Difference between budget and forecast – Bookkeepers

  • Imagine a scenario where you have expert assistance combined with the efficiency of cloud accounting software. You can achieve this with the help of virtual bookkeeping.
  • This method will include both the above-mentioned ways and give you a perfect hybrid solution.
  • With the help of bookkeeping services, you will be able to undertake forecasting and budgeting in a full proof and flexible manner.
  • In a case like this, you will get regular updates, real-time analysis, and proactive assistance.
  • It is secure, modern and error-free.

Which is More Important? Forecasting vs Budgeting

The debate between forecasting vs budgeting would be on the table of finance professionals. The entrepreneur understands that you require both. You cannot rely on one and leave the other.

The combination of forecasting and budgeting will always remain in the business.

Moreover, to make your business a successful one and long-running, you have to monitor your financial requirements. For this, budgeting can prove to be a good tool, which is used to plan for the future.

Forecast helps where your business has to predict the future on certain historical assumptions.

In short, both the tools are beneficial to the business; a budget defines the company’s goals. On the contrary, a forecast shows the expectations of a company for a period.

Our Words

The debate of forecasting vs budgeting is a long one and will take time to resolve. But the most important thing is that there might be a difference between budget and forecast, both of them are equally important for the business.

Laura Price: Books are my way to the world and my favorite genre are thriller and non-fiction. And as true as it would be, the world of finance is the biggest mystery and an active reality that I strive to know more about each day! That is what I love to write about. When it comes to writing, I have had a particular interest in virtual bookkeeping. It is amazing to see how intricate processing such as Payroll Processing Services, accounts payable services or all the accounting service in general can be done with the help of the web and industry experts. My writing areas include a lot about this. After all, what is better than having all your CPA services online and getting benefitted by them! This is all I write on.

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