The “Actual” column stays blank until the year-end when you review performance. Filling in those numbers will allow you to see whether you achieved your target. By conducting variance analysis on such KPIs and the forecast directly, management is given insightful information that may be used to reduce risk or change objectives. It can give you, for example, an idea of whether your company will have enough money to cover its expenses and debts and how much profit it might make. In truth, there are critical differences between these two financial metrics, and interpreting them correctly is important to gather the most comprehensive and accurate insights.
Teams should review the budget regularly and compare it with actuals, making each department responsible for any variances that occur. Discover how finance teams across all industries streamline their FP&A with Cube. Connect and map data from your tech stack, including your ERP, CRM, HRIS, business intelligence, and more. Sync data, gain insights, and analyze business performance right in Excel, Google Sheets, or the Cube platform. If that sounds interesting, get a personalized demo and see how you can have more control over your business’s finances.
What Is a Budget?
This activity also helps businesses allocate their budgets adequately and evaluate whether the business plan is achieved. A company’s budget is typically re-evaluated periodically, usually once per fiscal year, depending on how management wants to update the information. Budgeting creates a baseline to compare actual results to determine how the results vary from the expected performance.
It means that even if you don’t necessarily expect a situation to play out, you can look at your financial statements under those circumstances. Financial projections are prospective financial statements (also known as pro forma financial statements). Forecasts include relevant financial assumptions you expect to hold true over the forecast period. You can use financial budget vs projection forecasting software to automatically roll those assumptions forward period over period. The figures on the forecasted income statement, balance sheet, and cash flow statement should rely on expected actions to the best of your company’s knowledge. Forecasting, on the other hand, projects where a company is headed based on the latest available information.
Spreadsheet Models for Budget Projections
Because budgets often serve as targets for performance management, they do not necessarily align fully with forecasts either. For instance, if your business typically has a slow month, a forecast will show you that in the numbers. Or, if you have forecasted your growth based on retaining a large client and that client for some reason is no longer using your services, you can quickly adjust your forecast to compensate for the loss. As we mentioned above, you don’t want to waste time budgeting for financial and business growth that will never really happen. A forecast helps you ground your predictions in reality by taking past financial growth and projecting that growth in the future. Remember, it’s a plan for all of your money — that includes money for fun stuff, too.A budget doesn’t have to be rigid.
These processes allow companies to evaluate performance, adjust expectations, set realistic goals, and ultimately, grow. Financial forecasts should be expanded into scenarios for best case, worst case, and working case. This is especially relevant in periods of economic downturn, where small businesses may be struggling with a decrease in demand and changes to their supply chain. Budgeting is the process of setting your financial goals for a specific period, often for one year. Identify all of your expected expenses, including fixed and variable costs, such as rent, salaries, supplies, and utilities. To estimate your expenses, review your historical expenses, categorize them, and consider external factors like inflation and changes in the market, etc.