A budget is a plan, which is set out in numbers. It sets out figures that an organisation like a company hopes to achieve in the future. For example, a company like Kraft will create budgets for:
- Budgeted sales
- Budgeted production figures
- Budgeted costs, etc.
Here is a sales, costs and profits budget for the supply of chocolate eggs in the six months leading up to Easter:
![](https://businesscasestudies.co.uk/wp-content/uploads/2021/03/11236948611.jpg)
Note that the actual figures achieved by the company may be different from the budgeted ones. For example sales
figures may be £20,000 because demand is less than expected. However, costs may be the same because the firm may have already produced £12,500 worth of eggs to sell. If that were the case then actual profit would only be £7,500, which would be really short of the budgeted figures.
![](https://businesscasestudies.co.uk/wp-content/uploads/2021/03/11200474282.jpg)
A budget is a plan for the future set out in numbers dealing with quantities such as sales, costs and production.
Cash flow forecast
A cash flow forecast is an estimate of future figures based on experience. You can make forecasts about all sorts of events e.g. the weather, the likely result of a sports fixture, etc. In business, you can forecast future sales figures, or the likely cash flow into and out of a business. A business often prepares a cash flow forecast showing the money likely to flow into and out of its bank account in a given period.
A retailing business typically makes sales of 500 items a month at £5 each. It buys each item that it resells for an average cost of £2.50 each. The running costs of the business are typically £1,000 per month. We can now calculate the cash flow of the business and set it out in a chart. The ‘bottom line’ of each monthly column shows the forecast bank balance at the end of that month.
![](https://businesscasestudies.co.uk/wp-content/uploads/2021/03/11200474282-1.jpg)
Forecasts are based on past experience, whereas budgets are based on active plans for the future.