Is the title alone making your head hurt? Don’t worry. It’s not as complicated as it sounds.
Instead of starting with the subject of the title, why don’t we first define how a business plan, a forecast and budget are all part of the same thing?
All three of these practices boil down to having your hands on the financial controls. They allow you to become nimbler, with the ability to shift financial focus and redefine priorities. These processes are a roadmap of your financial situation. They tell you when to stop and take stock and when to surge ahead.
So, what’s the difference between a business plan, a forecast and a budget? Let’s find out!
Your business plan is an essential barometer. It serves to sum up your business goals and what you know about them and acts as a strategic document, stating goals and time frames for achieving them.
Your business plan is alive. It’s a dynamic document which reveals the past, your status now and your vision for the future. It’s a workflow tool which gives you the big picture. Your business plan is your guiding light – not something you prepare at inception and then stick in a drawer, forgetting which drawer you stuck it in.
And here’s where getting nimble enters the picture.
The forecast provides an informed opinion about the short-term prospects of your business. Based on your business plan (which is the foundation of everything you do, financially speaking), the forecast allows you to adjust according to need. That includes everything from inventory to your products (and developing them), staffing, sales and customer service. With the right information, you’ve got your hands on the controls.
And you can’t do any of that without a dynamic, living tree business plan, which is also the basis of your budget.
This is your planning document. As we’ve said elsewhere, budgets aren’t written in stone, but they do provide a control for how your business’s resources are going to be most effectively allocated.
Usually concerned with a timeline of one year, your budget is a set of guidelines for how you’ll deploy your money to best serve its goals and interests. It’s a baseline, when you’re in command of what’s happening. If what’s happening doesn’t mesh with the budget, you can re-calibrate, measuring the business plan and forecast against the budget. Plans and goals must meet, which is why the budget should also be viewed as a dynamic tool which is subject to change.
A budget is just a part of financial planning and it’s contingent on the other two aspects of your business’s financial health. Measuring what you’re expecting to take in against financial output like payroll and vendor agreements, the budget is how you hold the line and plan for growth.
Ready to put your books on someone else’s plate? Then you’re ready for Norton Financials. We act as your personal finance department, freeing your human resources to build your dream.