We will continue the Financial Advisory month by talking about Financial Forecast as a valuable strategic asset this week.
What is a financial forecast?
When writing a company’s business plan, it's crucial to include a financial forecast. It enables you to forecast your company's income and costs over a certain period. Even though the activity might be difficult to carry out at times, it is necessary for any business owner. Indeed, it enables you to set quantifiable goals that will help you to build your business in a healthy manner. Financial forecasting may assist you comprehend the steps you will need to take and the numbers you will need to reach to expand your company.
A financial forecast is also a prediction tool or guide that helps a company to predict how it will look financial in the future. It needs to be updated regularly for instance monthly or quarterly and needs to be tracked and displayed side-by-side with the actual results. It is a resource which can help the company to gain competitive advantage over its competitors.
Difference between a financial forecast and a financial plan
A financial forecast is an estimate or projection of expected future incomes or revenues and costs, whereas a financial plan outlines the measures required to create future incomes and meet future expenses.
A financial plan is a road map written now that can be followed throughout time, but a financial forecast is a prediction or estimate of future consequences expected now.
Importance of financial forecast
It enables a firm to take control of its cash flow and move in the proper direction.
This enables a corporation to obtain bank loans and other forms of finance from a variety of financial organizations.
It acts as a guide for the firm, indicating its financial status and viability.
How can a financial forecast be a valuable strategic asset to your company?
A financial forecast is usually an economist's best chance for determining what will happen financially to a company in a given period. A financial forecast is more of a map, you can see exactly where your company is going based on prior performance and other factors, and you can use that information to predict future results.
The tone of your financial goals and budget for the year is determined by having a well-researched strategic financial forecast. The financial forecast is an important component of strategic planning for a company's resource allocation decisions. Creating a financial plan or strategy for your company entails putting money away for certain needs while considering your revenue and spending. The information and insights from the financial predictions in the forecast are used to create your budget or plan.
Aside from assisting in the planning of the company's future budget and resource allocations, financial forecasts may also be used to compare previous performance. The forecast allows you to look back on previous forecasts and identify where they were off, as well as assist you make a better forecast the next year. In July, for example, income was significantly higher than expected. I had no idea there would be a seasonal bump during the summer vacation. These simple and common notes can help you build critical business knowledge that will help you be more successful than previous year.
At the end of the day, the more precise your prediction/forecast, the easier it will be to plan your business's future and think quickly. Plus, if you are seeking funding, you will need a financial forecast to track your company's progress and to wow investors and lenders by demonstrating that you have thought of (nearly) everything.
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