• Lionel Pavey

Why a budget is not the same as a forecast!

Many times I see companies try and make their forecasts fit to their budget - this is a great mistake.

A Budget can be defined as an expert planning for what a business wants to achieve within a given time frame - normally 1 year. It is an annual task (normally performed in the Autumn) to attempt to state what the business thinks it will achieve in the next fiscal year.

A Forecast (normally rolling in nature) is an adjusted estimate of what looks likely to be achieved in the current fiscal year. As a forecast usually relates to cash movements (their exact timing as opposed to their booking) they are more short term in nature. They traditionally encompass the actual position since the start of the fiscal year, together with the forecast for the remaining period. They are regularly updated (monthly) and pinpoint where a business could experience financial constraints.

So whilst the Budget is used to position the business for the long term outlook, the Forecast actually details the changes that need to be made to keep the business afloat. As most budgets are annual and not rolling, they tend to be very static in nature - the chances that a prognosis made in October 2017 for the fiscal year of 2018, will actually be realised is very remote.

If you need advice on this subject, please contact me

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