16 Nov Budget vs. Forecast
Budget vs. Forecast
Since the addition of a forecast feature with QuickBooks Premier Version 2003, the ability to create budgets and forecasts has been a source of confusion. To determine which is more appropriate in a given situation, let’s first look at the definition of each.
According to The Free Dictionary by Farlex:
– A budget is an itemized summary of estimated or intended expenditures for a given period along with proposals for financing them.
– Whereas a forecast is to calculate or estimate something in advance; i.e. to “predict the future.”
Based on this information, a budget is the plan that documents what financial results are expected. A forecast is generally used in a broader sense: For example, if we invested more heavily in marketing, what would the result be for the financial health of the business. This can be expanded to develop many different “what if” scenarios: what if we added a new line of product, what if we added another sales person, what if we hired a business manager, etc.
In QuickBooks the budget feature is a list (which means it is relatively easy to import and export the budget figures from Excel). The standard reports make the comparison of budget versus actual results quite easy. The budget can be entered “from scratch” by entering the information directly into QuickBooks, or can be created based on the previous year’s actual results.
The forecast is a Premier 2003 and higher only feature which can be used to enter forecast amounts from scratch or by using prior year’s actual results. Standard reports are also available for the forecast as well as forecast versus actual formats.