5 very good reasons to have a financial forecast for your business
Aug 3, 2020
A financial forecast is a summation of your business plan and strategies in numbers. It charts your business’ profit, cashflow and overall financial health as reflected in the balance sheet.
A properly constructed financial forecast should include all key business drivers, including non-financial ones, key relationships between these drivers and linkages to major variable expenses. The power of developing a financial forecast on this basis requires you to review, analyse and understand your business in sufficient detail to identify these key drivers and relationships. This gives you great understanding of your business.
A financial forecast looking forward at least 12 months gives you a view of the future. This gives you an opportunity to identify future issues and opportunities. This gives you the time to develop strategies/plans in response.
Building the ability to flex key variables into the financial forecast allows you to run scenarios to test strategies and ideas, stress test the business, model the introduction of new products or revenue streams and sales trends.
A financial forecast provides a financial path setting direction for the business and against which actual performance can be measured.
