One of the best tools a business can utilize to know where it currently stands and where it needs to go to achieve its financial objectives and goals is the financial forecast.
For the uninitiated, a financial forecast is a fiscal management tool that presents a systematic projection of expected actions your finance operation should take. Basically, creating a financial forecast is like plotting the route you need to take to arrive at your destination.
Planning for sales declines should be taken into consideration. For example, your business may experience a decrease in sales in the rainy season, and solutions should be made to overcome these obstacles e.g. start a more rigorous marketing campaign before the rainy season starts, or offset the season’s/quarter’s sales target to next season/quarter.
To perform projections and forecasts, various financial statements should be accessed – including past records, cash flow, fund-flow behavior, the applications of financial ratios, etc. together with considering the economic condition of the industry in which the business operates.
While the financial forecast is just a smaller aspect of a larger planning process within an organization, it has an immense impact on the overall decision-making process. Such advantages of financial forecasting are:
Now that you understand how financial forecasting can help you make a better decision for your business, it’s time to familiarize yourself with its fundamentals. Financial forecasting includes the preparation of the following:
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