By Joseph F. Fragnoli
One of the best tools that a business can utilize to know where its current standing is and where it needs to go to achieve its financial objectives and goals is the financial forecast – which is a fiscal management tool that presents a systematic projection of expected actions that your finance operation should take.
Additionally, Business Dictionary defines financial forecast as “[a] prediction concerning future business conditions that are likely to affect a company, organization, or country.” Additionally, a financial forecast “identifies trends in external and internal historical data, and projects those trends in order to provide decision-makers with information about what the financial status of the company is likely to be at some point in the future.”
A financial forecast is like plotting the route you need to take to arrive at your destination or listing down the steps you need to accomplish a task. Planning for sales decline should be taken into consideration. For example, your business may experience a decrease in sales during the rainy season when your products or services are less likely to be availed by your usual clientele or market. The solutions that you’ve planned should be made to overcome these obstacles, e.g. starting a more rigorous marketing campaign before the rainy season starts, or offsetting 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, and fund-flow behavior, the applications of financial ratios, etc. together with considering the economic condition of the industry 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.
Learn more about how financial forecasting can help you make a better decision for your business, how to familiarize yourself with its fundamentals, and the preparations you need with this infographic: