Jeffrey Tan, Negosentro | For business owners, it is important that their business is always at the top of its processes, fiscal decisions, and market and industry standing. This is why there are always reports to be made, statistics to be gathered, and evaluations to be made. For businesses to evaluate where they are currently positioned and where they can go from that point forward in terms of financial goals and objectives, capability, and predictions, a financial forecast should be employed.
According to the Business Dictionary, a financial forecast is “[a] prediction concerning future business conditions that are likely to affect a company, organization, or country.”. It is useful for identifying the trends that exists based on external and internal historical data, which is then projected to provide the decision-makers with information on what the financial status of the company will likely be at some point in the future.
A financial forecast is like plotting the route you need to take to arrive at your destination. And like any good planner, you should anticipate for the worse case scenarios so you aren’t caught unaware, without a solution to your problem that you would’ve otherwise solved easily had you prepared in advance. For example, your business may experience sales declines during a particular season. This information will help you think of ways on how you can counteract this problem and ensure that you won’t encounter dead air. Otherwise, you are potentially driving your business to a risk-laden path.
While it is only an aspect of a larger planning process within an organization, it has an immense impact on the overall decision-making process. Some advantages include:
- Validates the financial viability of a new business venture
- Allows a business to measure its actual financial operation against the forecast financial plan, and adjust when necessary
- Provides better control over the business cash flow
- Provides a benchmark where future performance can be measured against
- Spot any potential financial risk and shortfalls to avoid financial trouble
- Helps explain the requirement of additional funds for the business
- Helps provide a business capacity to repay a load to its investors, suppliers, and banks
Here are a few tips that will help you ensure that you can create an accurate financial forecast, as key takeaways from the infographic:
- Use different scenarios.
- Start with expenses.
- Identify your assumptions.
- Benchmark results to industry standards.
Learn more about these tips, what you can do to accomplish them, and more with this infographic now.