Cant understand budget vs forecast.

[Benbay001]

As part of my electronics HNC we have a unit on business planning.

We create a business plan for an engineering based business.

As part of this we have to produce a forecast and budget for the business, but from the research i have done a forecast only differs from a budget as the year progresses, so how would they be different for a business i never plan to start?

Sorry if that makes little sense, ill try to provide any more details people ask for.

Thanks

[BoRED S2upid]

What’s the actual question? Write a business plan?

[Simpo Two]

I might suggest that a forecast is a guess as to how much money (or sales) you will make, and a budget is how much money you are planning to spend. So you could forecast sales of £50K and a budget for sandwiches for £500, for example.

[akirk]

a forecast is simply a prediction of a position at a future point in time
a budget sets out how you plan to spend over a period of time

a budget is about spend
a forecast is about your overall position taking into account spend and income

[Countdown]

A budget is your initial estimate (of both income & expenditure)
A forecast is your ongoing (continuously revised) estimate of income and expenditure.

Budgets you usually do once, before the start of the year.
Forecasts you usually do monthly or quarterly.

[2 sMoKiN bArReLs]

Countdown said:

A budget is your initial estimate (of both income & expenditure)
A forecast is your ongoing (continuously revised) estimate of income and expenditure.

Budgets you usually do once, before the start of the year.
Forecasts you usually do monthly or quarterly.

That's how I've always used the expressions.

[Benbay001]

Thanks all.

We have been asked to do the forecast and budget aswell as producing P & L, Cash Flow and Balance Sheet for 1-2 years of the business.

I cannot see how i can write anything for a forecast that wouldnt be covered in the 3 financial statements, as ultimately those are my expected expenditure and income for the period.

[Chozza]

It might help if your "engineering business" is producing something with a variable or seasonal demand..

having a difference in demand makes it easier describe

i.e. if you plan to make and sell 10 widgets each month , contrast with something that sells 100 in december 20 the rest of the year but can only make 10 a month.

Add in credit terms and some late payments and it starts making sense

[Countdown]

Benbay001 said:

Thanks all.

We have been asked to do the forecast and budget aswell as producing P & L, Cash Flow and Balance Sheet for 1-2 years of the business.

I cannot see how i can write anything for a forecast that wouldnt be covered in the 3 financial statements, as ultimately those are my expected expenditure and income for the period.

You CAN produce a multi-year budget (basically a Medium Term Financial Plan). Basically this sounds like an open-ended question where you could keep it simple (eg Your budget for every year is the same) or you could make it more complex by including the following variables

1. In Year 0 there might be a lot of CapEx as you spend on buildings, machinery and equipment.
2. In Years 2-5 you've got a lot of depreciation. then in years 6-10 you're paying less on depreciation more on repairs & maintenance
3. For each year between 1-10 you show an annual increase of 5% in turnover due to advertising, repeat business, word of mouth
4. You also need to show an increase in costs due to the increase in turnover (you'll be spending more on materials, petrol etc)

Basically its an open ended question.

[Benbay001]

Thank you both.

Helped alot.



Ill be tackling this again tomorrow, so maybe back with more problems.