Introduction
In running a business, budgeting and forecasting are two fundamental processes. These tools help a company create management plans to take the company forward. Both terms are always used together, but they are both distinct concepts.
This article explains both services and how to use them to your company’s advantage. Also, you may need the help of a professional. If you are in Auckland or anywhere around New Zealand, you should consider Knobloch & Associates.
The difference between budgeting and forecasting
Forecasting predicts the potential income and expected expenses that will be incurred in the future. A budget compares the forecast with the actual results showing the variances.
What is budgeting?
Budgeting is a process of comparing the forecast with the actual results and making decisions and plans with respect to interpreting the results from that. If you are in Auckland, you can rely on a Chartered Accounting firm like Knobloch & Associates to help you with your company’s budget.
What are the features of budgeting?
The following are the features of budgeting;
- Estimation of revenues and expenses
- Recording the expected reduction in debt
- Allowing for the expected capital expenditure required in the business plan
- Recording the expected cash flow
- Comparing forecasts with actual data to know the variances in the figures
Budgeting shows the financial plan and results of a company – their cash flow and goals. The company’s budget is periodically revised or set at least once a year. It can be revised more often if management requires it. The actual results are compared with the expected performance to measure how well the company performed during the year.
Although there is no fixed rule, many companies like to create yearly budgets. Financiers sometimes require more than one year’s budget to assess borrowing propositions. This allows management to monitor the performance of the business throughout the year. Also, the company’s management may require flexibility to enable regular adjustments during the year due to changes in the business or performance.
Financial forecasting
Financial forecasting may be confused with budgeting. Financial forecasting uses various data to project the company’s financial outcomes. This forecasting is used to set company goals in a budget.
What are the features of financial forecasting?
The following are the characteristics of financial forecasting;
- Determination of a company’s expected performance in the future.
- Financial forecasting can be regularly updated once there is a change in operations or business plans. The update could be monthly, quarterly or when required.
- Forecasting can assist in monitoring and solving financial issues early before they become serious.
Financial forecasting is helpful to plan inventory and production levels. A company can strategically plan for many years ahead if necessary.
How does the budget work?
A budget compares forecasts with actual results. Budgeting involves the estimation of revenues and expenses and comparing these with tangible results. This can include capital expenditure and borrowing for the business. A budget is an essential roadmap to guide your company to the desired goals.
It does not matter the type of business it is; the budget is critical to the company’s wellbeing. If you are in Auckland or New Zealand, consult Knobloch & Associates.
Does my business need to employ a third party for my budgeting and forecasting services?
Yes, you can employ the service of a professional like Knobloch & Associates for this task. They have completed budgets and forecasts for companies based in Auckland and New Zealand and companies based in Australia. Knobloch & Associates can give an objective approach to estimating and calculating revenue and expenses as they have experience dealing with these matters with their clients.
We have experienced cost and management accounting staff and have been in business for 35 years and have a reputation for assisting clients in these matters. We are based in Auckland. However, we deliver services to clients throughout New Zealand and abroad.
If you are in Auckland or elsewhere in New Zealand, Knobloch & Associates is a chartered accounting firm that helps medium-sized businesses grow successfully. With a team of Accountants in Auckland, you can rest assured that you will be supported in dealing with any business issues. In a competitive and challenging financial environment post-Covid, you must get the right professional advice.
Request for an appointment via 092622846. You can also contact them via their website, https://www.knobloch.co.nz/
