Learn Budgeting Vs Forecasting On Your Own:

Budgeting and financial forecasting are like two sides of a coin. While budgeting helps to prepare the estimates for future, financial forecasting are financial planning techniques that help business personnel in their decision-making process. Budgeting helps in evaluation of revenues that a business wants to realize in the near future period, whereas financial forecasting is used to calculate approximately the amount of revenues that will be achieved.

A budget estimates the amount of revenues and expenses a company may incur over a future period. Budgeting represents a business' financial position, cash flows and goals. A company's budget is usually re-evaluated in a year, depending upon the managements' need for information. Budgeting creates a baseline to compare actual results and evaluate how the results differentiated from the expected performance.

On the contrary, financial forecasting estimates firm's future financial results by examining historical data. Financial forecasting allows management teams to anticipate final results based on previous financial data. Financial forecasting is used to determine how they should allocate their budgets for a future period. Unlike budgeting, financial forecasting does not analyze the variation between financial forecasts and actual performance. Financial forecasts are updated frequently with change in operations, inventory and business plan.

Management team can use financial forecasting and take immediate action based on the forecast data. Conversely, budgeting goals that may not be attainable due to changing market conditions. If a company uses budgeting to make decisions, the budget should be updated more frequently rather than once a year so as to maintain relationship with the current market circumstances.