Most business owners find it easy to interchange budget with forecast. For entrepreneurs who have just started running a business, it may be easy to confuse the two. But for growing businesses, managers like you should already be well aware of what sets the two apart from each other. So what is the deal? What makes budget different from a forecast and why do you need to understand both? Read on to find out why.
A budget is a plan for what you want your business to spend on for a certain period of time. The budget is usually used to keep an SME’s business finances on track. Through a very thorough and detailed budget plan, you will be able to determine how much you need to shell out for a particular business expense. A budget also empowers a business owner so that he can better understand his cashflow and ensure that his financial resources are being put to good use.
The Financial Forecast
A financial forecast, on the other hand, serves an entirely different purpose. Financial forecasts are important financial document which are used to demonstrate how financially viable your business is. Through the figures in a financial forecast, business owners are able to showcase the overall financial health of their business to stakeholders. This is especially useful when you are expecting new investors to come in and put money into your business.
The Relevance of Both
Regardless of the size of your business, you need both budget and forecast to make sure that your business has a solid financial foundation. If you have a strategic budget plan in place, you can effectively streamline the use of your cashflow, paving way for a significant improvement on your business finances. And of course, if you have a good financial forecast, you will be able to determine early on how your business finances will perform, moving forward. Thus, you will be able to point out possible pain points and how you can manage these in the long run.
When it comes to business, having voluminous business ideas and an innovative mindset will not suffice. More than anything else, you also need to know the most important financial concepts about business in order to see to it that you are using your financial resources properly.
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