The nitty-gritty of financial forecasting

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The nitty-gritty of financial forecasting

‘Forecast’. It’s that common buzzword we’re all used to hearing our accountant say. But how many of us actually know what financial forecasting means?

*Cricket chirps*

Not to worry. Today we are going to explain the ins and outs of forecasting, so you don’t have to nod your head pretending you know what’s going on in your next finance meeting.

 

What is financial forecasting?

The definition of a forecast is “a statement of what is expected to happen in the future.” Essentially it is an informed estimate of future events or trends, usually determined by past data and industry knowledge.

So what does forecasting mean in terms of finance?

Most businesses can benefit from predicting future numbers. Not only does financial forecasting reveal current financial positions, it also gives business owners a clear insight into their finances for several weeks, months, or even years into the future.

Financial forecasting is a process commonly used in business planning and financial strategies. It uses past business statistics to assist with budget allocating, cash flow management and preparing for upcoming expenses.

 

What is the difference between a budget and a forecast?

Creating realistic long-term financial goals requires a lot of in-depth analysis. For businesses, this often involves a well thought-out forecast and budget.

The main difference between the two is a budget is a financial plan containing targets for the future, whereas a forecast gives you the likelihood of the position of the business.

 

What are best practices for financial forecasting?

It is essential to pull together quantifiable statistics in order to create an accurate financial forecast for a business. However, due to fluctuating variants, it is essential to update a business forecast at regular intervals, such as monthly or quarterly.

Such variants may include the business’s current financial position, past and upcoming expenses, anticipated or probable costs, business revenue, expected income changes, market movements, industry revolutions, future financial projects, employee wages, inventory adjustments, business growth, interest of consumers and so on.

Of course, you can’t be expected to predict this all on your own (and if you do, your forecast may not be as reliable as you’d hope). Your accountant can provide you with integral financial support to help you devise an accurate forecast for your business.

For more information on financial forecasting, please contact Walker Hill on 07 3367 3155 or email Nick Hill at nick@walkerhill.com.au.