Budgeting vs. Financial Forecasting: What’s the Difference?

Philanthropy is a thriving institution in many ways. Recent estimates place this industry at a $182 billion value. It seems to be doing quite well for itself. 

But how do these industries balance their budget? How can a charitable organization maintain accountability when receiving so much in donations?

CIC budgeting and forecasting can help CICs make informed decisions with their money. It’s an important part of the CICs existence and helps it remain active for many years. 

But what exactly are budgets and forecasts? How do they help CICs? Keep reading to learn more!

What Is a Budget?

In simple terms, a budget is a system of spending and saving. This budget is typically not based on the potential earnings and expenses estimated for the year. A budget is usually based on the current situation. 

This means that a budget is not based on projections. Rather, a budget is based on the current financial situation of a private individual or a business. Business budgeting is similar to a private budget, just on a larger scale. 

For a private individual, a budget is fairly straightforward. A budget is essentially based on finding your revenue versus expenditure. This procedure is applicable for every level of need, from personal to governmental. Every aspect of human society should have a budget since it helps prevent a deficit. A deficit is similar to debt for private individuals and businesses. 

The deficit is usually used in political settings to refer to a loss of revenue that results in a negative balance. This terminology is sometimes utilized by businesses well, however. A business may state a net loss for a year of operations if they did not earn as much as they spent. 

The importance of a budget is it helps prevent this from occurring. As a business, you will want to employ a well throughout budget every year to help you avoid these issues. 

What Is a Forecast? 

Forecasting is typically only used for businesses. Unless you are attempting to plot out your probable expenses as an individual. Forecasting typically refers only to business forecasting, however.  

Business forecasting is the process of estimation and informed projection. Essentially with a business forecast, the business is better able to make informed decisions. There are two ways in which this is accomplished. 

One is through market forecasting. This refers to how a specific type of market is likely to perform based on market analysis. This may mean projections of the perfume industry or the textile industry.

For example, a budget forecaster may project a loss in coffee revenue due to climate change. As the climate continues to shift the coffee industry is struggling to meet the demands of consumers. As a result, a market forecast may predict either a loss in revenue or a loss in availability. 

This would be a form of prediction based on information. Therefore, forecasting helps guide a business’ investments and how they choose to manoeuvre due to market trends. It is not a budget, but it helps inform the budget. 

The other type of forecasting is more personalized for the business itself. These might include local anomalies that may impact the business’ functions. This can also include foreseen potential expenses. This may mean the need to replace large equipment or other upcoming potential expenses.

What Is Budgeting vs. Forecasting? 

You might be wondering now, what is budgeting vs forecasting? Essentially both are used to help guide the business and how it operates. But, a budget is based on what is currently available. A budget looks at a business’ accounts and assets and develops the value of the business. 

With this information, they proceed to discover the known expenses of the business. Usually, these expenses only factor in known expenses. Not estimated or foreseen expenses.

Unless it is something that will definitely be purchased or added as an expense that year. Most known expenses include payroll for employees and rent or mortgage payments for business property. 

In comparison, forecasting projects potential expenses and revenue. It may gauge the way the market will perform and specify it to your business.

Forecasting also helps shape and inform the business about how to proceed. With each year forecasting helps the business adjust for potential difficulties. Or, to act on potential benefits. 

The Importance of CIC or Charity Budgeting and Forecasting Importance.

CIC budgeting and forecasting is an important part of the life of a CIC. What is the budget for a CIC? What is forecasting in business for a CIC? Basically, it is very similar to a generic business budget and forecast. 

All Charities and CIC’s need a budget in order to apply for a grant, because you have to tell the funder exactly what you need the grant for, and what other money you will be receiving. A budget helps you to make financial decisions and keep control during the year / during your project.

However, this helps the organization continue to perform its helpful social work. CIC funding depends heavily on private donors and charities. Through their work, they provide much-needed aid and assistance to cities and towns. 

With proper budgets and foreknowledge of potential trends, these businesses can flourish. If they flourish then their charitable work will also flourish. 

How to Prepare a Budget and Forecast

Business forecasting methods and budgeting methods entail vast knowledge. This knowledge must include the company’s potential to grow. But it must also include the company’s current earnings and expenses. 

When preparing these tools all of the data must be up to date. There cannot be any lost or outdated information. Or else the tools will not be very useful. 

Last, you must make sure to include a start and end date. This means for a budget and forecast you must have a projected time frame. Otherwise, the budget and forecast are too vague to apply properly to any situation. 

CIC Budgeting and Forecasting for You

When you prepare a budget for your CIC you need to have it be accurate. But, it should also help your CIC remain balanced and useful. The utility of your CIC depends a lot on its capacity to budget itself.

CIC budgeting and forecasting can help you expand your company’s potential. There’s an old expression that you can’t get water from a stone. This is true for your company as well. If your company’s finances aren’t balanced it’s hard to help others.  

At K.G. Accountants we care about your CIC’s success. Reach out to us today with all your questions! 

How we can help

Call us today on Tel: 0207 953 8913 or complete our enquiry form in order to book a FREE initial consultation

If you would like more information or would like to ask us a question then call us on 0207 953 8913 To ask us a question online click here.

Categories: budget, budget, budget, Charitable Incorporated Organisation (CIO), Charity Bookkeeping, Charity Reports, Forecasting, Forecasting


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