The financial arm of businesses across the globe is not one to toy with. Aside from the fact that money is the fuel of the business, it’s essential to stay on top of your game when it comes to financial matters. This will help you plan the growth of the company, and of course, foster profit. To fully grasp economic issues in your organization, you need to learn the art of planning, budgeting, and forecasting. This article explains the importance of these steps and their respective meanings. By the way, for the best budgeting, planning, and forecasting, I recommend Page Kirk.
What is Planning, Budgeting, and Forecasting?
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Planning
As the name implies, planning refers to setting out guidelines for some time. In finance, it can be a period of between five and ten years. It’s a projection from where you are present, of where you want to go, and sometimes, how you want to reach those goals. For instance, if you want to make one million dollars in 12 months, you have to analyze where you are now and how you intend to get there.
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Budgeting
Budgeting is the next step after you plan your financial matters. This time, you include more details of how you want to actualize your plan. Also, you have to include the cost of each step of that plan. Often, the budget consists of the expenses, revenue, and expected results. In most cases, the budgeting always has a span of one year. For example, if your financial goal is to hit one million dollars by 12 months, your budget will have a monthly breakdown of $120,000.
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Forecasting
When you’re planning any financial goal, you should have expected results. Forecasting is the last lap of the process where you give result guesses about the financial goal. Forecasting requires a deep analysis of many factors, so an expert mostly does it. You have to study the history of the market and the way it has grown. You have to analyze the present trends of the market to give an accurate forecast. For instance, if you want a revenue of one million dollars, a forecast will tell you if that goal is viable or otherwise. A forecast is part of the process that helps you analyze the market trends and set reasonable goals.
What is The Difference between Planning, Budgeting, and Forecasting?
Planning, budget, and forecasting are all integral parts of financial planning. However, not everyone knows the difference between the three entities. Almost anyone will understand the meaning and concept behind planning. But budgeting and forecasting look alike to most people. However, there are certain differences, which are listed below;
- A budget is a record of present cash status, past situations, and future projections, while a forecast is a prediction of the future based on past expenses and market trends.
- You can draw a budget over a long period, but a forecast is frequently changed.
- At the end of the day, you can compare and contrast the results between budget, expectations, and results. However, for a forecast, you can’t necessarily compare the results because it’s a mere prediction.
Why is Planning, Budgeting, and Forecasting Important?
Planning, budgeting, and forecasting are essential to the growth of an overall business. It’s a continuous process, as you have to continue analyzing the market and make an informed decision. This process helps you strike the right balance between finance and operations. Finally, this process enables you to achieve all the financial goals you have.