What if your business could predict the future?
It may sound pretty drastic, but a good business forecast can do just that. Unfortunately, many entrepreneurs don’t know how to make business forecasting work in their favor.
That’s why we put together this entrepreneur’s guide. Keep reading to learn everything you need about forecasting!
What Is a Business Forecast?
Our guide starts by answering your biggest question. What, exactly, is a business forecast?
At the most basic level, a business forecast is a bit like a weather forecast. In both cases, experts must study historical trends and combine that with current data in order to make predictions about the future.
In business forecasting, the focus is usually on revenue and expenses. By generating a forecast each quarter, you can generate KPIs and generally develop strategies to optimize your business.
Benefits of Forecasting
Now you know a bit more about how forecasting works. But what are the primary benefits of forecasting?
First and foremost, forecasting helps reveal major trends. This provides an opportunity for your business to change direction and take advantage of what’s hot.
With enough data, you can also manage your cash flows and capital requirements more efficiently. And you can use the data to help you create the tightest and most accurate budgets.
In the short term, forecasting helps entrepreneurs know where to focus their efforts. And in the longterm, accurate forecasts can help you secure funding from investors.
What’s the Difference Between a Budget and a Forecast?
Earlier, we mentioned how a good business forecast can help you with your budgeting. But what is the difference between a budget and a forecast?
There are actually many differences. For example, budgets usually don’t extend beyond five years. But forecasts are shorter, focusing on the fiscal year or the next few quarters.
Budgets don’t have to be disclosed. But if you own a public company (rather than something like an LLC), you must disclose your business forecasts.
Ultimately, the biggest difference is the reliability factor. Budgets get less reliable as time goes on because the data is out of date. Meanwhile, forecasts rely on current data and remain more consistently reliable and accurate.
Generally speaking, there are two kinds of business forecasts. Periodic forecasts can be done at any point. But rolling forecasts are generated on a regular basis that could range from once per year to once per month or even once per week.
Rolling forecasts are handy for making predictions that extend beyond your budget window or scope. And it’s pretty convenient: you effectively “roll” your forecast forward while making adjustments based on the most recent data.
Rolling forecasts may take a little longer to set up. But once it’s ready, this is one of your most powerful tools for keeping your business on track.
Now you know what a business forecast is and why it’s so useful. But do you know who can help you create an accurate forecast?
We specialize in financial services, tax services, CFO services, and much more. To see how we can boost your business, contact us today!
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