Financial Forecasting: why should it be done and how to achieve it?
Imagine if you could already know how much you should spend next year for your company to grow and produce even more profits? Well, no need to imagine: with financial forecasting this is not only possible, but extremely necessary.
Assertively predicting all future expenses and revenues is the challenge for many companies. However, few of them pay attention to the actual financial forecasting and end up betting on managers’ personal beliefs or experiences to make this type of projection – if it is even made.
Therefore, in this post we will discuss financial forecasting and its importance in the efficient management of a company. We will show you how it can be done, as well as its main benefits.
What is financial forecasting and why is it important?
Financial forecasting is nothing more than a projection of all future revenues and expenses of your company. It is usually calculated over predetermined periods and takes into account important factors such as the historical analysis of the company’s finances.
Financial forecasting usually has two approaches: short-term and medium-term. In the short term, the analysis is carried out monthly and should generate a forecast of at least one year in advance.
In the medium term, the period may be longer, up to three years. In this case, the forecast is made annually and takes into account a larger historical analysis, in addition to factors that are external to the business. The calculation of the budget and forecast help a lot in this scenario.
Some items always permeate the financial forecasting calculation and should be observed more frequently (obviously, each business has its niche and each niche has its specificities):
- business balances;
- market behavior over a given period;
- daily transactions and operations;
- cash flow;
- productive capacity;
- sales history and acquisition of new revenues.
3 great benefits of financial forecasting
Financial forecasting has numerous benefits for the management of a company. However, 3 of them deserve to be highlighted and can be noticed in the first months of adopting this tool. Check it out below:
1. More assertive goals
One of the greatest benefits of a good financial forecast is to bring more assertiveness to the goals. By considering the company’s historical data, as well as external factors, it is possible to establish achievable goals based on actual indices.
This avoids frustration in the company when a goal that was unattainable from the beginning is not achieved, and prevents the budget from being depleted due to that goal and what could be profit ends up becoming a loss.
2. Management by indicators
Financial forecasting also offers a better management based on indicators. With the power of predictability, there is also the possibility of creating action plans to tackle specific points expected in the coming months or years, such as overhead reduction, logistics optimization, etc.
3. Makes the company more financially secure
Perhaps one of the most important benefits of financial forecasting is providing security to company accounts. With everything planned, it is possible to make a precise provision and protect the company’s finances even in the worst scenarios.
This brings many institutional benefits and can even attract investors, as it consolidates the business in the market.
Technology as an ally of financial forecasting
Nowadays, carrying out a quality financial forecast is becoming more and more accessible. With the help of management software and tools such as Big Data, managing and forecasting financial scenarios became more productive.
Therefore, use all the tools available and ensure a strategic financial management so that your business can grow for many years.