April 15, 2013
A budget is how you hope the business will operate; a forecast is what you think will happen. Budgeting and forecasting mechanisms are the same, but the budgeting process comes first. Forecasts are made later, when the outlines of the future are better defined. At that point, a comparison between budget and forecast may suggest actions to be taken and adjustments to be made to bring them closer together.
Computer-based spreadsheets make the development of budgets and forecasts much easier today than for previous generations of managers. There are even software packages that provide forecasting tools, although these templates must often be modified to fit the needs of a particular business.
Despite the availability of electronic assistance, the most critical element of cash and fund projections is the quality of the estimates made by knowledgeable managers in preparing them.
Effective management of cash and credit relationships depends on good funds forecasting. Without funds forecasts, the treasurer will not know when to expect cash surpluses or deficiencies, the amount of the surplus or deficiency, nor the duration of the borrowing need or investment opportunity. Funds and cash forecasts may be made for short-range planning purposes on a daily, weekly, or monthly basis, or for long-range planning purposes, usually for one year or longer.