Budgets vs. Forecasts

Good morning Mr. Dunbar.
I often hear F&B managers talking about budgeting and forecasting. What is the difference between the two and how would you budget and forecast an operation?
Regards
Robert

Your budget is a reflection of your strategic goals, past performance, and your one year forecast. Typically, results are tracked monthly and your accounting system will show budget variances on a line by line basis. The most important issues for food service operators are the top line sales forecast and the prime costs. These prime costs include cost of goods sold, direct labor and direct operating expenses.

You can find excellent budget resources in your library. Cost accounting books and management accounting books explain variable costs and fixed costs. Your budget should reflect the realistic goals of your organization. All key managers should participate in the annual budget process.

Once the budget is final, this plan of attack should be treated as a contract between management and the owners of the company. In the current environment, zero-based budgeting techniques are quite effective. You need to know your break even point. Its a good time to take a hard look at any fixed expenses. Eliminating unproductive fixed expenses is a great way to lower your break even point sales.

Forecasts help you create your budget. While budgets are typically fixed for a year, forecasts have variable time periods. You can forecast for the next 5 years, the coming year, quarter, month, week, day or even meal period. People spend a lot of time forecasting sales. Its easier to forecast your prime costs once you have a sales target.

The planning horizon impacts your forecasts. Top level executives need to have a 5 year vision. The five year planning and budget process helps to put these long term forecasts in perspective. Line people may forecast the next meal period. The manager who is responsible for scheduling may need to forecast the week ahead.

Any great budget requires a great forecast. Top forecasters can help you beat the budget all year round.