Budget and forecast: planning the numbers

Many SMEs close the books, look at the result and only discover after the fact how the year went. It is like driving while looking in the rear-view mirror. Budget and forecast are there to do the opposite: to set out in advance where you want to get to and correct course while the year unfolds. They are not exercises reserved for large companies — they are the tool an entrepreneur uses to decide whether to hire, invest or hold back before the bank balance delivers its verdict.

Budget and forecast are not the same thing

They are often confused, but they answer two different questions.

The budget is the target: what we want to happen during the year. It is built once, before the financial year, and remains the benchmark.
The forecast is the updated projection: given what we know today, how we will actually close. It changes over time, as real data comes in.

The budget says “where we are aiming”, the forecast says “where we are heading”. You need both: the first to set the discipline, the second to avoid fooling yourself.

How to build a budget that stands up

A credible budget starts from assumptions, not from final figures. The classic mistake is to decide the desired revenue and then make the costs add up backwards. The correct approach is the opposite:

Estimate revenue starting from concrete variables: how many customers, what average price, what recurrence. A few explicit assumptions are better than a growth percentage picked “by feel”.
Separate fixed costs (rent, salaries, social contributions, BVG/LPP occupational pension, licences) from the variable costs that follow volume.
Provide a line for contingencies: no year goes exactly as it does on paper.

A good budget is built month by month, not just for the year. Seasonality and outflow peaks — VAT payments, tax instalments, the thirteenth-month salary — must be placed at the right moment, otherwise the annual plan hides real liquidity strains.

Variance analysis

The budget only becomes useful when it is compared against real data. Every month or quarter you set budget and actuals side by side and look at the variances. The questions are always the same:

Is the variance one of volume (did we sell more or less) or of price?
Is it temporary or structural?
What changes in the rest of the year if the trend continues?

A variance is not a grade on the past: it is information to update future decisions. If revenue is 15% below target halfway through the year, there is no need to redo the budget — you need to understand why and act.

The rolling forecast

The annual budget has a limit: by October you are still reasoning on assumptions made the previous year. The rolling forecast solves the problem. Instead of stopping at year-end, the projection always extends twelve months ahead, updated every quarter with real data. This way the planning horizon stays constant and you never end up reasoning “blind” in the final months. For a growing SME, where conditions change fast, the rolling forecast is often more useful than a rigid budget.

Connecting the numbers to liquidity

A budget that reasons only about revenue and costs is incomplete: the profit and loss statement is not the cash position. A customer invoiced at 60 days is revenue today but liquidity in two months. That is why the forecast should include a cash projection that takes into account:

Collection times for receivables from customers.
Payment deadlines to suppliers.
Tax and contribution outflows concentrated in certain months.
Instalments on financing and planned investments.

This is where many profitable companies run into trouble: they earn on paper but are left without liquidity in the wrong month.

In summary

The budget sets the target; the forecast updates the projection.
Start from revenue assumptions, separate fixed and variable costs, reason month by month.
Analyse variances to decide, not to judge.
The rolling forecast always keeps twelve months of visibility.
Connect everything to liquidity: profit is not the cash position.

How we help you

We build concrete budgets and forecasts with SMEs — solid assumptions, variance control, cash projection — so that the numbers become a steering tool and not a set of results to endure after the fact. Let’s plan your numbers together.