Budgeting sets the financial plan for the year ahead; forecasting updates that plan as the year unfolds, and together they give a business a target to aim for and a current view of whether it is on track to hit it.
A budget without a forecast is a plan that gets ignored after February. A forecast without a budget has no benchmark to measure against. The two work together: the budget establishes the financial commitments and targets for the year, and the rolling forecast tracks actual performance against them, updating the outlook as conditions change.
For growing businesses, the forecast is the more operationally valuable of the two. It tells management not just where the business has been but where it is headed, which is the information that drives decisions about hiring, capital allocation, and cash management. A business that only looks backward at actuals is always managing the past. One that maintains a current forecast is managing the future.
See also: Variance Analysis · Cash Flow Forecast · Scenario planningA budget and forecast that are actually used to run the business are a different thing from ones produced to satisfy a lender. See how Wefinx approaches Virtual CFO services.