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The Ultimate Guide to Budgeting and Forecasting for Business Growth

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Budgeting and forecasting are essential components of any business plan, and understanding the differences between the two can help you make more informed decisions.

When you’re putting together a business plan or a strategic plan for growth, or a strategic plan for growth, you’ll hear people talk about budgets and forecasts. Sometimes it seems like the terms are used interchangeably, but there are some key differences between budgeting and forecasting that you should know about. 

What’s the difference between budgeting and forecasting?

In their simplest form, budgets are used to manage expenses while forecasts are strategic revenue road maps based on high-level business goals. 

But the differences are a bit more nuanced than that. Budgets are about managing details while forecasts are used to guide high-level strategy and keep your business on track.

Just like with a good home budget, a business budget provides guidelines for exactly how much should be spent in different areas of a business. But, budgets can also be created for sales. Sales budgets will detail specific sales targets for specific products. They are granular and detailed in nature and are usually built to help salespeople stay on track.

Forecasts, on the other hand, are about thinking big picture to help your business grow. Forecasts are driven by broader goals, like how much revenue you can bring in from an entire segment of your business. For example, how much revenue do you think you might bring in from bike sales, in general? You might also create a forecast for broad categories of expenses – all marketing expenses, for example. A marketing budget, on the other hand, would specify exactly how much to spend on TV advertising and brochures.

What is a Forecast?

A forecast is a high-level, strategic view of where you want your business to go in the future. It is a prediction of where you think your company will grow that’s often based on historical data—your past results over a period of time. A forecast will predict key, high-level revenue streams and major categories of expenses. Forecasts tend to focus on revenue and help determine spending predictions.

The key to a successful forecast is not to get into the granular details. You don’t want to create a forecast that accounts for every last item that you sell, or every detailed expense that you have. 

Instead, focus on bigger categories of sales and expenses. For example, if you run a bike shop, you might forecast sales for bikes, clothing, accessories, and service. You don’t need to predict exactly how many bike shorts you’re going to sell.

How to Use a Forecast to Build your Business

A forecast is one of the most useful things you can create to develop your business strategy and help you make key decisions about where you will focus. For example, if you want to grow your revenue from service in your bike shop, you’ll probably want to forecast increased marketing spending and perhaps increased headcount.

To get the most out of your forecast, you’ll want to do a few things:

  • Compare your actual results to your forecast on a regular basis. With a tool like Syft Analytics, you can create automated high-level reports that summarize how your business is doing. You can then make adjustments to your forecast based on past results and changes in the business landscape.
  • Create multiple financial forecasts, or scenarios, to explore different strategic outcomes. For example, what will your business look like if you can grow service sales by 20 percent? What happens if you can cut expenses by 10 percent?
  • Include your team in the forecasting process. Even small businesses should have their core team participate in the forecasting process to ensure that everyone’s on the same page and understands what the company goals are.

What is a Budget?

Budgets typically refer to detailed guidelines of how much should be spent in different areas of your business. Most commonly, budgets are considered spending guidelines. Budgets are typically detailed, setting limits for spending on things like travel, office supplies, fuel, insurance, etc.

Some businesses will also create detailed revenue budgets, developing detailed budgets for the sales of specific products and services. This is very different than a revenue forecast that focuses on the big picture and doesn’t get into the granular details. For example, forecasting sales of “bikes” is very different than budgeting the number of bikes you plan on selling from each specific manufacturer.

Businesses typically have an annual budgeting process that starts a month or two before the end of the fiscal year. Larger businesses will create budgets at the department level and then roll up all the department budgets into a master budget.

Smaller businesses typically use a faster, simpler process. The budget is typically driven by the business owner and key managers in the business.

How to get the most out of a budget

Budgets can be used as a tool to give some level of spending control to department managers or other leaders in a business. Instead of the owner or CEO having to make all spending decisions, budgets allow spending to be delegated since the budget acts as a guideline that dictates how much to spend in particular areas.

Tracking spending compared to your budget gives you deep visibility into where the money is going in your business. You’ll see what categories you’re overspending in and where you have room to spend more. 

You can also use the budget to reallocate spending. For example, if you overspent on travel, you could consider reducing the budget for marketing.

Should you do a budget or a forecast?

If you’re like most business owners, you have very limited time and need to make sure that you’re investing your time in the things that will have the biggest impact on your business.

Since budgets can take a significant amount of time and effort, I recommend starting with a forecast that guides your strategic direction. This means looking at the big picture for your revenue and expenses. Determine the major sales and expense categories that you should pay attention to and then create forecasts for those.

This type of forecasting takes less time and doesn’t require that you dive into granular detail. For example, you may forecast an amount to spend on “marketing.” You don’t then need to specify exactly how much you plan on spending on online advertising compared to print advertising.

As a business owner myself, I’m passionate about helping others succeed. I believe that budgeting and forecasting are powerful tools that can help businesses of all sizes achieve their goals.

Expert tips and best practices for improving your budgeting and forecasting processes

To get the most out of budgeting and forecasting, it’s important to set clear goals and create a plan to achieve them. By tracking your progress and making adjustments along the way, you can ensure that your business is on the path to success.

One key best practice for effective budgeting and forecasting is to regularly review and adjust your projections based on actual performance data. This allows you to identify trends and adjust your strategies accordingly, helping to ensure that you stay on track to meet your financial goals.

Another important tip is to involve all relevant stakeholders in the budgeting and forecasting process, from department heads to finance and accounting teams. This promotes transparency and collaboration, and helps to ensure that everyone is aligned around shared goals.

Finally, it’s important to leverage technology tools and software to streamline and automate the budgeting and forecasting process wherever possible. This not only saves time and resources, but also reduces the risk of errors and increases the accuracy of your projections.

The final word

By using budgeting and forecasting to guide your business decisions, you can ensure that your company is on the path to success. By setting clear goals and tracking your progress, you can make informed decisions that will help you achieve your business objectives.

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