What is the importance and the differences between financial forecasts and budgets?

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Philippe Gloaguen

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In the business world it is important to have a financial projection, as it allows us to prevent trade and economic downturns. So it's only natural that we hear about budgets and financial forecasts, but the truth is that these are very different. For this reason we will explain in this article, what is the importance of financial forecasts and budgets as well as their differences.

What is the importance and the differences between financial forecasts and budgets?

What is financial forecasting?

The financial forecasts are the future projections of the behavior of entrepreneurial institutions , usually in the area of ​​sales or profits. Forecasts can be applied in the short, medium and long term, taking into account the areas in which they are generated. For example, financial crisis or situation of a company making a certain investment or making changes in logistics and production.

They are predictions, not necessarily verified facts, but they are a very useful way to prepare the institution to possible contingencies and unforeseen events. On the other hand, financial forecasts provide the board of directors with the knowledge to create business strategies and make correct decisions.

What is the financial budget?

The financial budget in the amount of money calculated to meet the general expenses of daily life or of a company. In other words, it is the advance calculation of income and expenses that will exist in the future over a set period in the short, medium or long term.

In the case of companies, the goal of a budget is ensure that no more is spent than generated in sales or production. In many cases it will be necessary to make adjustments which must be reported in an accounting report called a "cash budget".

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The budget is used to allocate money for specific purposes, they are the objectives that companies set themselves to achieve an end.

Differences between financial forecasts and budgets

Next, we will show you the differences between financial and budget forecasts, as this way you will gain an understanding of both.

  • He budget is the economic plan presented in numerical terms, prepared by the administration in advance for a certain period.
  • The prediction consists of evaluation of trends and long-term results , based on past and present data.
  • The financial projection allows you to evaluate events or trends in the business, on the current business conditions.
  • He budget it is an expression of how much money will be contributed all'investimento.
  • When you set a forecast you don't set a specific goal.
  • When making a budget , the goal is established , as this will be used to generate income.
  • The annual or quarterly update of a budget is done due to the change that a product or investment undergoes in the market.
  • The forecast has update intervals.

Importance of financial forecasts and budgets

  • Importance of financial forecasts.
  1. The company can evaluate the future behavior of a project and the time it will take.
  2. The forecast in the company will serve to determine if there will be the need to acquire new plants , production, raw material resources and workers.
  3. Better control of production and sales strategies that are generated.
  4. Address any eventuality that causes a commercial decline.
  • Importance of the budget in finances.
  1. By having a budget you can better control your income and expenses over a certain period.
  2. The budget allows you to adapt to reality in so as not to generate more expense than income .
  3. For a company, the budget is essential in order to deal with a possible financial problem.
  4. If there were no serious budget management, the company would suffer a considerable downturn.
  5. Have a budget significantly reduces business uncertainty .
  6. In general, having a good budget means being able to meet the needs of a company more effectively.
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So far we have been able to understand that it is a financial and budget forecast like its importance and the differences that exist between the two. And also how important it is to keep these details in mind, which will teach us how to best manage our company, business or enterprise.

We hope this article broadens your knowledge or helps you answer your questions about accounting terms, the miracomosehace.com portal will provide you with more financial content.

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