The Difference Between Financial Forecasts vs Projections

However, a forecast in this industry might involve predicting the potential impact of economic events, like interest rate changes or geopolitical shifts, on different asset classes. This forecast would consider a range of possible scenarios to guide investment strategies and risk management decisions. On the other hand, a forecast in the life sciences industry could involve predicting the potential impact of emerging medical breakthroughs on patient outcomes. This forecast would consider factors like clinical trial results, regulatory changes, and technological advancements to provide a more comprehensive view of potential future scenarios. Projected financial statements are prospective financial statements that incorporate the impact of potential future events into the financial data.

• If what you want is a bit more complex, we do have modification and custom model services available and we can provide you with a custom quote for those changes.
• A budget is made for a specific period and is usually based on past trends or experiences of the company.
• For some companies, management may need to be flexible and allow the budget to be adjusted throughout the year as business conditions change.
• For instance, if your sales tend to be higher in the summer and fall, you’ll want to include that in your projections.
• Expectations for revenue and expenses are often annualized because most budgets are set annually.
• However, a financial forecast is relevant because of the information it provides because it can highlight the need for action.

CFOs understand that each is a standalone piece of the company’s financial puzzle. In contrast, you use projections internally to assess such things as the viability of investments and the payoff from introducing a new product. Typically, you make forecasts for the near future as a longer time frame risks a loss of accuracy. Say you expect your SaaS company’s annual recurring revenue (ARR) to increase by 15% over the next year due to a new affiliate program and sales campaigns.

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We offer complimentary projection reviews and have access to helpful SBA & industry data to make sure your projections are ready for action. The good news is you can use our web application ProjectionHub to create a set of financial projections or a budget for your business for free right here. These « what-if » scenarios combined could produce a roadmap or budget estimate for a business to follow. Finance teams essentially perform a form of budget forecasting when they create what-if scenarios and present a plan or budget for each one. Financial planning lays the foundation for budgeting, suggesting that a financial plan must precede the budget so that company leaders have an idea of what they are budgeting for.

Because of the long-term nature of a financial plan, it allows for more flexibility and creativity. In the case of a financial plan (versus a budget, for example), the means are less important than the end. Ultimately, a good financial plan provides a top-down operational framework to explore various budget vs projection scenarios. Leaders ask themselves how the business will stack up in the next 1, 5, or even 10 years. The “plan” answers that question by outlining the company’s operational and financial objectives. Executives build out teams and infrastructure based on this plan and the defined goals.

Use Financial Modeling Software to Build Better Forecasts & Projections

Despite this, a plan is more static—more of a roadmap than a document updated daily. The plan relies on historical performance data and subjective financial analysis, so it can never be fully accurate. This helps in assessing risks and making decisions to mitigate potential negative outcomes.