Forecasting

Definition and Importance:

Forecasts are projections about the future. 

Being projections, they are subject to wide variation depending upon who makes them, the information used to form them and the audience they are provided to.

All business projections and forecasts must be anchored as closely to reality as possible. This can only be achieved through research. Research takes time and costs money. Forecasting is essential for effective business planning. They provide a measuring stick for actual business performance and is critical for financial institutions to determine business viability for loans.

Factors that require forecasting include: 

• revenue levels, 

• staffing costs,

• number of sales (overall and in specific regions), 

• time for completion of projects (time is money), 

• total profit from firm operations, 

• expenses (categorised into different sections of business activity).

Inaccurate forecasting can result in under-capitalisation and an overreliance upon debt to continue operations.