One of the differences between financial forecasting and budgeting is that financial forecasting is not always related to finance, so other factors such as inflation rates, economic politics, etc. are considered. For example, if a top manager considers an inflation rate of 7% for 2024, then the manager will also estimate an increase in income of 7%, while budgeting will always be related to numbers or money.In simple language, financial forecasting is an estimate of the financial condition of a business/company in the future using past or historical data, which can be made on a monthly or quarterly basis. Examples of financial forecasts that are always made by companies are sales forecasts, purchase forecasts, cash in and cash out forecasts, etc.
What are the Benefits of Financial Forecasting for your Business?
- Thread starter Suba
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Financial forecasts are not fail proof but they generally give a business direction on managing and generating finances. As much as possible, factors like inflation should be captured in financial forecasting.
Financial forecasting is an essential part of business planning. With financial forecast, you can allocate resources effectively. You may also prepare sales and marketing plan based on your forecast.
Financial forecasting helps a business to know how to allocate and manage resources. It helps to understand the goals of the business and the clear road map to meeting those goals.
Financial forecasting is essential to a business in that it enables the owner/manager to discern potential or upcoming challenges an opportunities. For example, a forecast can help a business to learn that it would be requiring additional capital in future, after a particular shareholder withdraws her/his membership.
The forecasts can be used to measure the performance of the business over time. This is done by examining the reality on ground to the goals of the forecast. This can lead to ultimate improvement of the business.
They are not fail proof but just give probability of what to expect in the next fiscal year. Financial forecasting depends on the prevailing government policy. That is to say not all financial forecasting come to practical as av result of changes in government policy.
