What’s the difference between a Business Plan,  a Forecast, and a Budget? Or as I prefer to label it: Exercise, Control, and Agility. It is crucial to think about this now, because as we near the end of the year it is always a good time to do a little refresher to plan for the upcoming new year. So I wanted to start with something that comes up often –  What’s the difference between a business plan, a forecast and a budget? I thought that was a good idea until I Googled the question. This exact question is the title of dozens of articles, by notable authors and the obscure. Waaay too much information….

So let’s try to make this easy, with the fourth quarter fully underway, next year is staring us right in the eyes. It’s time to exercise, take control and learn to become agile. Financially that is. The essence of business planning, budgeting and forecasting is nothing more than an exercise to gain control, and remain agile to shift, expand or recalibrate the goals so that you have a roadmap, with stops along the way to measure your progress.

Business Plans (or business planning) is neither art or science, it is an exercise in summing up what you know about your company and writing it down. A business plan is a strategy for achieving the goals you establish for your business, as well as the timeline in which to accomplish those goals. A business plan is a living document, not some book that you put together only to be left growing dust on a back shelf.

Performing the business plan exercise is important for several reasons. First of all, if properly performed, it provides a crystal clear view of the past, how your business is at present, and how you envision it in the future. Each function of your business should possess that same vision to help define the strategies and tactics that it will take to achieve the established goals and objectives. It helps to put on paper exactly what needs to be done to accomplish your goals, whether financial, marketing, investment or otherwise. One of the great tools we use is the are SMART goals that are or Specific, Measurable, Attainable, Realistic and Time Based (you can check out some tips in the Xero planning toolkit). By reviewing your entire business in preparation of the annual plan, this workflow tool is a must have.

With a written business plan, attaining needed capital is much easier if a cash infusion is a priority. Of course, an operational business plan is different from an investor-geared business plan. We can help you learn more about which format and style are best suited for your objectives.

A Forecast allows you to be an agile operator. Understanding what is happening and the ability to shift priorities, move headcount, or adjust resources as needed to strive for goal attainment. A forecast coincides with the business plan, whether it be for one year or a five-year forecast. If you plan in smaller bursts, say an annual plan, differs from a business plan in that it is a snapshot of the near future, as opposed to a full calendar year. A forecast is your best-educated guess of what the short-term future might hold as compared to the pre-established business plan and budget. Just about any portion of the firm can be forecasted, a sales forecast, inventory surge or shortfall, headcount needs, any income or expense line item is subject to a plan, forecast, and budget. We’ll get to budgeting in a moment.
Naturally, to forecast effectively, you’ll need to know the strengths, weaknesses, opportunities and threats by performing a SWOT analysis of the company. This insight is most helpful in estimating how your tactics will fare. There may be a need to amplify your existing product line, inventory, employee base, sales team, customer service department and the like.

Which came first, the forecast or the business plan?? (answer: for us, it’s the business plan because without even a basic plan it is hard to forecast where you are going)?

Budgeting is the process of establishing a point of control of your company’s resources. A budget spells out the parameters by which the business is to operate in the future (generally a period of one year or less). With a well-conceived budget in hand, you can control what is going on, measuring what is happening against what is planned, and the baseline to reinforce any forecast changes.
A budget is the portion of the planning process that itemizes the income expectations, cash deficiencies or surpluses, re-negotiations of expiring vendor commitments, and any rise or decrease in personnel and their related financial impact.

Over the coming months, we will go into more detail about each of these processes. For now, remember that your business plan, forecast and budget are a trio of processes that are the foundation of well-managed enterprises. Each of them holds particular value, and all three of them combined make for an excellent playbook.