Financial forecasting plays a crucial part in your business. A financial forecast helps estimate the future financial outcomes of your company – typically applied in budgeting. Cash flow, revenue, income statements, expenses and sales are examined to predict a company’s financial future.
It can be difficult to understand financial forecasting, what it is and why it’s so important. If you’re working in business, it’s essential that you have a clear understanding of the importance of financial forecasting.
Unforeseen factors could potentially disrupt your business’s financial performance, so it’s advised to speak with a professional when managing financial forecasting. To find out more information, continue reading.
What is Financial Forecasting?
What is financial forecasting? Financial forecasting is the process of making an estimated prediction concerning future business conditions. A financial forecast helps to identify trends in existing financial data and projects.
It’s best to have clear clarity on your current financial affairs such as revenues and expenses before you can make an estimation about the future. Balance sheets summarise a business’s financial balance.
Referring to the financial projections performed to help make financial decisions relevant to future business performance, financial forecasting often includes a full analysis of past and current business performance.
This helps you see how your business has grown over previous months and how it might perform in the future.
The Importance of Financial Forecasting
Failing to regularly conduct financial forecasting can end up being detrimental to your business in the long run. Financial forecasting has extensive benefits and can be most advantageous to your business.
It’s fundamental for a business owner to perform financial forecasting if you want to maintain a reputable status and have insight into the future of your company. Checking the costs of goods sold also helps give you an idea of how your company is performing.
By carrying out financial forecasting, you’ll be able to have a clear understanding of how to budget for your company. Future insights allow you to budget more accurately and manage your expectations.
Establishing realistic business goals is key – accurate forecasting allows you to predict whether your business will grow or decline in the coming months.
It can be easy to overspend if you don’t have a budget set for various aspects of your business. Forecasting allows you to create a more accurate budget, which ultimately helps keep your business in line with financial plans you may have previously made.
Additionally, you can expect to pick up on arising problems when forecasting. It’s easier to identify ongoing issues when you take a look back at your previous performances. With an array of beneficial factors, it’s hard to see why some business owners would want to avoid financial forecasting.
Common Types of Financial Forecasting
Financial forecasting can be performed for various purposes. There are four main types of financial forecasting, including sales forecasting, cash flow forecasting, budget forecasting and income forecasting.
Sales forecasting entails predicting how many of your products your business will sell within a certain time frame.
Cash flow forecasting predicts the cash flow of your business and what has come in and out of your company. Cash flow statements make it easier to forecast, which has a plentitude of benefits.
To create a financial guide for your future, budget forecasting is key. Budgets help form expectations for your business and determine the outcome of budget planning.
To view your business’s past revenue performance and current growth rate, it’s recommended to complete income forecasting as part of your business plan.
How LJS Accounting Services Can Help
LJS Accounting Services have been operating for over a decade, maintaining a respected status within the industry. We take pride in our work and dedicate time and effort to making sure our clients are more than satisfied with the services we deliver.
With a wealth of knowledge and experience, our ambitious team are devoted to providing the highest standards of work at all times.
We remain on hand whilst dealing with our client’s cases, building close-knit relationships and offering business advice and guidance. We believe that knowing where you’re going can help you get there – whether you need Forecast and Projection services, look no further than LJS Accounting Services.
If you’d like to find out more information about our extensive range of services, feel free to contact us today by calling us on 0151 601 0000. We look forward to hearing from you in the near future.