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There is a widespread misconception that if the business is small, there can’t be any risks of breakdown. However, all the enterprises are vulnerable, when you forget about two vital things for business – budgeting and forecasting. Let’s break down small business budgeting vs forecasting.
These aspects are completely different, but they have a connection with each other. Budgeting concerns detailed financial outline. Thus it is about what will happen to business financially after a certain period of time. This aspect includes revenues, cash flow and expenses. You can find the data if you have a look at the Financial reports of a particular company. As for small business, the owner is one who prepared all the reports.
As for forecasting, it gives projections, what might happen to business after a long time. It mostly concerns general expenses and revenue items. It is necessary to build strategic business plans for years. So a good report of such type can also help to get a loan.
Let’s now talk about the importance of these aspects for small business. They lie in the following:
• control of finances,
• setting of long-term targets and creating strategies for their achievement,
• anticipating various economic problems, working for the future success,
• maintenance of everyday liquidity.
What is more, a good forecast is able to help in developing reasonable budget. It is also possible to compare the reports with the existing forecast to understand the positive or negative changes. Thus, these functions are connected and not mutually exclusive.