Why have a Forecast & Budget?
A forecast & budget is critical for effective financial management.
A forecast is a projection of future financial performance.
A budget is a plan for how a business will allocate resources to achieve its goals.
Tracking performance versus a plan is the process of comparing actual results to the forecast & budget to identify variances & make adjustments.
Below, we explore the importance of having a forecast & budget then tracking performance versus the plan.
Forecast and Budget
A forecast & budget are good tools for financial management because they provide a roadmap for achieving the business’s goals.
A forecast predicts future financial performance based on historical data with assumptions about future trends.
A budget is a plan for how a business will allocate its resources to achieve its goals based on the forecast.
Use a forecast & budget plan for the future, allocate resources effectively, identify potential challenges & opportunities. And to provide a basis for measuring performance & making strategic decisions.
Tracking Performance versus a Plan
Tracking performance versus a plan is the process of comparing actual results to the forecast and budget to identify variances & make adjustments.
This enables you to stay on track & make informed decisions about how to allocate resources.
Tracking performance versus a plan, helps to identify areas where you are exceeding or falling short of your goals. So, you can adjust your strategy, such as reallocating resources, revising the forecast or budget, or taking corrective action to address performance gaps.
Tracking performance versus a plan also enables you to identify opportunities for improvement.
For example, if a business is consistently exceeding its goals, it may be able to invest in growth opportunities, such as expanding its product line or entering new markets.
If you consistently fall short of your goals, you may need to cut costs or adjust the strategy to improve performance.
The Importance of Forecasting, Budgeting, & Tracking Performance
A forecast & budget plus tracking performance versus a plan are critical components of financial management, to plan, allocate resources effectively, identify potential challenges & opportunities. So, you can measure performance & stay on track.
Forecasting, budgeting, & tracking performance are important for stakeholders, such as investors and lenders. They need accurate & timely financial information to confidently invest investment or lend to your business.
Conclusion
A forecast & budget means you can track performance versus a plan are to impose financial management. These tools enable you to plan for the future, allocate resources effectively, identify challenges & opportunities. Tracking performance versus a plan, keeps you on track, and helps identify problems or areas for improvement.
