SMLS (CS02) Forecasting
Understand Where You Want To Go, Then Plan How To Get There
The Seven Steps
Forecasting or projections are the core of the financial data in any business plan, which is looking to the future. In order to get anywhere, you need to identify your destination before you can determine the best route for getting there. The same is true in your business or SBU. Forecasting is a process of identifying that destination and then establishing a rough map for your businesses’ future activities. It’s not 100% accurate, but accurate enough to locate prominent hazards and to establish direction for the business to follow.
Forecasting is based on carefully reasoned assumptions, quantified in a systematic way to make your projections about what will happen in the future as accurate as possible. By taking a systematic approach to forecasting, you gain a deeper knowledge and understanding of your business. Add the concept of break-even analysis, and you have a powerful tool to improve decisions regarding expansion, pricing, product mix, advertising, staffing, and many other areas of your business management system.
The final product of your forecasting effort becomes your projected cash flow, the basis of the cash budget, which in turn is the primary tool for controlling your business. The purpose of the forecasting process is twofold: it affords an excellent opportunity to review the past and it provides the best guide to the future your business can have.
In this topic, forecasting is described as a seven-step process. It involves a systematic analysis of the current and projected structure of the business, a break-even analysis, and various ways of determining reasonable growth patterns for your operation.
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