Budgeting Or Forecasting: Which Is Best for Your Small Business?
Budgeting and forecasting are both important aspects of running a small company, and many business owners choose to outsource them for the best results. Not only does this save time and energy, but a tax or accounting professional, for example, may have certain industry insights and knowledge that they can impart to help a business reach its goals far quicker and become successful in the long term. But while there’s no doubt that both budgeting and forecasting are important, should you focus on one more than the other, or are they of equal importance?
To find the answer, it’s necessary to look at both in a little more detail:
Budgeting – what is it?
A budget basically sets out how you want your business to be doing in the next financial year, and typically involves writing a summary of all your business goals and what you hope to achieve. A good budget also includes the date by which you think you’ll achieve the goals you’ve set out. While budgeting can help you to make strategic changes to your business that will help it become more successful and achieve all of the goals set out within it, since budgets involve predictions that cannot be guaranteed, their accuracy is somewhat limited.
Forecasting – what is it?
In its simplest terms, forecasting gives an estimate of what your business performance is going to be based upon previous results and a variety of business drivers. Forecasts are made more frequently than budgets, which are typically a once a year occurrence, meaning that their forecast period is shorter. Some businesses choose to forecast every quarter, while others may do so on a monthly basis.
Taking into account all relevant market conditions, forecasts are much closer to reality than budgets, and therefore enable you to adjust your business strategy to a more accurate degree. In some instances, a well formulated forecast can be used to predict a business’s long-term growth, and experts recommend that more than one forecast should be created depending upon your businesses particular scenario. By creating numerous forecasts that outline a clear path based upon different economic conditions, business owners can place themselves in a much better position when it comes to devising and implementing strategies.
What do the experts say?
It’s generally agreed within the professional world of business, that forecasts and budgets are of equal importance, and that both are essential tools for taking you closer to growth and enabling you to achieve your goals. While budgets highlight the gap between your current performance and your expected performance, solid forecasting shows you what you can realistically expect.
If you’re a new business owner and need guidance on how to create sensible budgets and accurate forecasts, seeking help from an accounting professional can be a worthwhile investment.
At Heyer Inc, we proactively assist our individual and small business clients in meeting their goals. Our key area of focus is ensuring that our clients remain compliant with federal and state tax laws by providing them with high quality accounting and tax services Miami. If you are looking for an individual accountant in Miami, heyer inc would be a right option.