Exploring the Difference Between Budgets & Outlooks 

Financial planning and analysis is a core function that all companies from startup and emerging growth to mature should have in order to properly measure and assess financial performance.  

However, this can be a challenging endeavor for new companies, as they often have limited resources and financial subject matter expertise. That is where financial consulting professionals, such as consultants here at Kranz, come into play.  

When working with companies – and especially startups – a key question we often receive is whether a budget or an outlook is more important to focus initial efforts on.  

Although both are financial planning tools and are sometimes used interchangeably by clients, the reality is that each is drastically different but equally important for financial planning.  

Budgets and Outlooks: What’s the difference? 

A budget is a projection of expected company revenue and expenses and is key to managing the day-to-day operations of the business. An outlook, on the other hand, is a forward-looking synopsis that integrates actual spend with a forecast and incorporates future economic conditions.  

With budgets and outlooks both serving as financial planning tools, the below table summarizes their key differences. 

	Budget	Outlook
Approval Process	Must be approved by leadership	More informal
Review Period	Ideally approved before the new fiscal year starts, then reviewed periodically – either monthly or quarterly	More consistently reviewed and updated
Time Frame	Short-term, usually for a year	Short-term or long-term, often extends multiple years
Flexibility	Mostly static unless changes are approved through periodic reviews	Dynamic, often regularly updated to account for changing conditions
Level of Detail	Very detailed down to the financial statement line items	Can be more generic, based on trends

Why is it important to have both a Budget and an Outlook? 

Budgets are used to set parameters regarding resource allocation to help the company stay on track by measuring actuals against planned amounts and ensuring expenses don’t exceed income. 

Meanwhile, outlooks assist companies in preparing for the future by projecting results based on historical data, trend analysis, and external market conditions. 

Often, budgets can provide the foundation for and help inform the outlook, although this is not a requirement. Outlooks are used to determine if the company is meeting its financial goals and targets, that are usually established in the budget. 

Real-world example of a Budget compared to an Outlook 

Suppose a company budgeted $800K for salaries and wages, one of the biggest company expenses, for this year. They made additional new hires earlier in the year than budgeted and after the budget had already been finalized.  

As a result, they have spent $550K for the first half of the year on salaries and wages, almost 70% of the allocated annual spend.  

In this example, it is clear that leadership did not factor their new hiring plan into the budget correctly, and they will now need to work with the board to get additional funds approved, propose a reduction in force, and/or cut back on other expenses to help mitigate the overspend and aim to finish the year in line with the targets set. 

Now let’s consider the outlook for the same company. Suppose that at the beginning of the year, a major competitor went out of business and the company decided to increase its sales team to take advantage of the opportunity.  

The new hires were sales employees who are bringing in more business and increasing revenue exponentially. As such, the company will want to adjust its outlook to adequately reflect the new hires and their expected contributions to revenue to better project expected results. The improved outlook should help justify the increase in salaries and wages expense for the board. 

Final Thoughts on the Importance of Budgets and Outlooks for Startup and Emerging Growth Company Success 

In conclusion, budgets and outlooks have different but complementary purpose to strategic planning, successfully running a business, and measuring its financial health.  

A budget helps a company define targets upfront and holds them accountable, whereas an outlook actively incorporates changes to the business and market conditions that impact performance. 

At Kranz, we offer a comprehensive suite of budgeting and forecasting services to help you chart a reliable path forward. Contact us today or learn more about our strategic financial services here.