A financial forecast is an estimation or projection of likely future income or revenue and expenses, while a financial plan lays out the necessary steps to generate future income and cover future expenses. Alternatively, a financial plan can be looked at as what an individual or company plans to do with income or revenue received.
Financial forecasting is critical for business success. To effectively manage working capital and cash flow, a company must have a reasonable idea of how much revenue it plans to receive over a given time period and what its necessary expenses will be over that same period of time. Financial forecasts are commonly reviewed and revised annually as new information regarding assets and costs becomes available. The new data enables an individual or business to make more accurate financial projections. It is easier for established companies that generate steady revenues to make accurate financial forecasts than it is for new businesses or companies whose revenue is subject to significant seasonal or cyclical fluctuations.
A financial plan is a process a company lays out, typically broken down into a step-by-step format, for utilizing its available capital and other assets to meet its goals for growth or profit based on a reasonable financial forecast. A financial plan can be considered synonymous with a business plan in that it lays out what a company plans to do in terms of putting resources to work to generate maximum possible revenues.
For an individual, a financial forecast is an estimate of his income and expenses over a period of time. Based on that forecast, the individual can then construct a financial plan that includes saving, investing or planning for obtaining additional income to augment his personal finances – as well as anticipating expenditures that would deplete them.