Understanding the difference between budgets vs cash flow forecasts is essential for the accurate financial management of any business. To appreciate the difference between a budget and a cash flow forecast, we need to define the key financial accounting terms:
- What is a budget
- What is a cash flow forecast.
It is important to know how to generate accurate financial reports and utilise these effectively. Using Calxa Software you can define your budgets and generate accurate Cash Flow Forecast Reports in Minutes, enabling you to better understand your business and your client’s businesses.
What is a Budget?
A Budget details what will be done with the actual finances for a specific period of time (usually over 12 months).
So, a good budget will:
- Link to both the strategic and business plans
- Include performance benchmarks that can be monitored
- Focuses predominantly on profit
However, a Budget is NOT used to monitor the amount of cash in the bank accounts. That is where the Cash flow Forecast comes in. The picture here shows you how to put a budget into action and comparing it to your actuals.
What is a Cash Flow Forecast?
Simply put, a cash flow forecast is a projection, detailing when the receipts and payments are likely to occur.
A good Cash flow forecast will:
- Reflects the ACTUAL income and expenditure from the bank accounts.
- Accounts for capital purchase and private transactions.
- Includes balance sheet liability payments.
You can see in this picture how the cash at bank is shown in context to your inflows and outflows.
What is the difference between a Budget and a Cash Flow Forecast?
The main difference between a Budget and Cash flow Forecast is based on the type of transaction and the timing when receipts and payments will occur. For example, a Budget will record the income when you have sent out the invoice whereas your Cash flow Forecast will trace it when you actually receive the amount in your bank account. Similarly, you can have a read of this blog The difference between a budget and a forecast.
Resources to help you Manage your Business
Now you know the difference between budgets vs cash flow forecasts. If you are serious about planning ahead for your business, check out our article on Tax Flow Planning for Business. You can also follow the steps set out in How to Manage your Cash Flow for Growth.