A detailed and well-thought out financial forecast is one the most important tool in running a successful business. Whether you are running a start-up venture or a well-established company, knowing how to conduct an accurate financial forecast can significantly impact the financial growth and the overall position of your business in the industry.
While creating a financial forecast might seem a challenging and daunting, it is doable for beginners who have the right tools and knowledge about financial forecasting. For the novices, a financial forecast a financial forecast is a fiscal management tool that presents a systematic projection of expected actions your finance operation should take. In basic terms, creating a financial forecast is like mapping out the path that your company should take in order to achieve its goals.
To create a financial forecast, various financial statements should be gathered and consulted. These documents range from past records, cash-flow, financial ratios, and factors such as present economic conditions which could impact the business operations – more specifically its financial situation.
That said, financial forecast is just one of the building blocks of business planning. However, its tremendous value shouldn’t be discounted, especially during the decision-making process. It provides a business to ascertain its future growth, and create solutions that will help them overcome any financial impediments along the road.
Here are key takeaways from the infographic below which teaches us the fundamentals of creating a financial forecast:
- Use different scenarios.
- Start with expenses.
- Identify your assumptions.
- Benchmark results to industry standards.
- Review your forecast regularly.
If you want to learn more about the basics of a financial forecast and how to create one, check out the infographic below from Joseph F. Fragnoli, CPA, PC.