By Aimee Mhaolcraoibhe
The difference between planning, budgeting and forecasting may not sound like much at a glance, but in terms of accounting there is every difference between them.
Planning is always the first step of any business. Figuring out how a company’s finances lay in the short term and in the long term is essential to setting up a viable business and maximizing the available assets to the best effect of the company. In the beginning a business does not have their own set of knowledge to draw from in relation to how much it will cost to operate, so it is often the case that businesses project their needs based on the needs of comparable businesses that they have been able to glean information from. Adapting the plans ongoing to incorporate new information will create a solid workable plan based on a business’s actual needs in the long run.
Budgeting is simply making sure that there is enough money to cover all of the outgoings that it will take the business to operate. This must take all financial factors into consideration and has to be accurate. This step is mounted after the planning stage to facilitate operations.
Forecasting is only commenced after the planning and budgeting has been effected. Once the business is operating and paying for all outgoings they begin to earn a profit. With this profit the business is then able to project future profits and to consider how they might reinvest those future gains into expansion. Planning forecasts that are timely in nature are key – making goals in the short term and long term separately to have a path that can be tracked. This will ensure that the business continues expanding and progressing as planned at the outset, thereby acting as an outline of future business paths.
If you want to learn more about the subject, why not consider a professional qualification such as the FP&A program, which will enable you to become an expert in the field.