Budget vs. Forecast: What’s the Difference and Why It Matters

“What’s our budget for Q3?” and “What’s our forecast for Q3?” sound like the same question. They’re not. Confusing the two leads to bad decisions, missed targets, and frustrating board conversations.

Budget: Your Plan

A budget is a financial plan for a specific period, typically set annually. It represents targets — what you intend to achieve and how you plan to allocate resources. Once set, it generally doesn’t change. It’s the benchmark against which you measure actual performance.

Forecast: Your Best Estimate

A forecast is your current best estimate of what will actually happen. It updates regularly — monthly or quarterly — based on actual results, new information, and changing conditions. A forecast says: given what we know today, here’s where we’ll land.

Why the Distinction Matters

A budget without a forecast is rigid. You set targets in October and cling to them all year even as reality diverges. A forecast without a budget has no anchor. You’re constantly revising expectations without a standard to measure against.

The best companies use both: the budget as a performance target and the forecast as a reality check. When the variance between them grows beyond 10%, it triggers a conversation: are we underperforming against plan, or did conditions change in ways we didn’t anticipate?

How to Implement Rolling Forecasts

Replace the static annual forecast with a rolling 12-month forecast. Each month: update the current month with actuals, revise the remaining months based on new information, and add a new month at the end. Your FP&A process stays current and you catch deviations 6-8 weeks earlier.

Do This Monday

1. Ask your finance team: do we have separate budget and forecast documents? If they’re the same thing, that’s a gap to close.
2. Pull your annual budget. Compare it to where you actually landed last year. What drove the biggest variances? Understanding this makes next year’s budget more realistic.
3. Start a simple rolling forecast: take your budget and update the remaining months with what you actually expect based on current trends.

If you want help implementing a rolling forecast process, book a free consultation →