Budgeting vs. Forecasting: Why One Static Plan Isn’t Enough
- Joshua Leyenhorst, CEPA, CPA
- 3 days ago
- 3 min read
As we get closer to planning for the next year, a lot of business owners are thinking about budgets. That is a good thing!
But here is an important distinction that often gets missed:
A budget and a forecast are not the same thing.
Most businesses create a budget once a year based on certain assumptions and inputs:
Overall business goals
Expected revenue
Planned expenses
“Best guess” scenarios
That budget sets the direction and answers the question: “Where are we trying to go?”
Very often, however, the budget gets saved and isn’t really looked at again until year-end.
Where Dynamic Forecasting Comes In
A forecast takes that original budget and brings it to life.
Instead of staying static, a forecast:
Updates as real numbers come in
Adjusts for what is actually happening
Reflects new information, not old assumptions
A helpful way to think about it is this: Your budget is like the anticipated destination, and your forecast is like Google Maps keeping you updated on how that journey is going to get there.
You do not have to abandon the destination when traffic changes. You reroute. Sometimes, if the journey is going really well, you can anticipate reaching your destination early and moving further from there!
Why This Matters for Your Business
When you update your forecast monthly, you gain:
Clear visibility into where cash is really going
Early warning signs before small issues become big ones
The ability to adjust hiring, spending, or pricing sooner
Fewer surprises at year-end
Instead of reacting after the fact, you are making decisions in real time. This helps you move from being a reactive or ad-hoc decision maker to being an optimized decision maker.
A quick note: If this is a new practice for you, and doing this monthly seems overwhelming, then start with doing this quarterly. It will still have a much larger impact than not doing it at all. Once you’re comfortable with that rhythm, then shift to doing this monthly.
A Simple Way to Start
You do not need a complicated system to begin:
Build your annual budget.
Each month, compare actual results to the budget.
Update the remaining months based on what you now know.
Use the updated forecast to guide decisions, not just reports.
The goal is not perfection. It is awareness. It’s knowing your numbers. Your numbers tell the story of your business, and the better you know that story, the better positioned you are to make decisions and strategic moves in your business.
A budget in a drawer does not help you run your business. A living, breathing forecast does.
Hopefully this helps as you start thinking about budgeting and planning for the upcoming year!
People often enter into business because they are good at what they do, but face challenges as their business grows. At BasePoint CPA, we serve as your experienced financial guides, so you can have confidence with regular financial insights and the ability to make informed strategic decisions.
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The information above is intended to be of a general nature, and is not intended to address the circumstances of any particular individual or entity, and is not able to capture changes that may be enacted that would impact the information above following the date of publication. As such, there is no guarantee that the information above is accurate as of any given date following publication, and so no one should act on or make specific decisions based on the information above without first receiving professional advice that can take into consideration specific circumstances for each person. Should you wish to discuss your specific situation, you can contact us here.
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