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The importance of financial forecasting for the management of a company

What is financial forecasting and why is important to business? Explain and give an example.

Share on Facebook Sales forecasting is a key element in conducting your business. The realism that good forecasting provides can help you develop and improve your strategic plans by increasing your knowledge of the marketplace. The forecast that your sales force provides is the source of information that allows you to manage virtually all aspects of your business.

  • Because of the limitation in regard to the procedures performed, the report is restricted to the users who specified the procedures to be applied;
  • Stable inventory also means better management of your production;
  • Any bank will want to see such forecasts and to analyze them before they will be willing to risk lending you any money;
  • These guesses make up a financial forecast;
  • This affords you the opportunities to manage resources and take full advantage of just-it-time ordering.

Sales Planning When your sales reps make their forecasts, they are also planning their future activities, providing each of them with a business plan for managing their territory.

Assuming that each of them has a quota to fill, forecasting is the tool that helps them identify the customers to meet their objectives.

Top 10 Reasons Why Sales Forecasting Is Important

Demand Forecasting The sales forecast is your best tool to get a good estimate of the demand for the products you sell. Your sales team is the front line for your business and best positioned to gather information about anticipated demand.

The information from sales forecasts guarantees that sufficient product will be manufactured or ordered to service customers on a timely basis, resulting in happier customers and fewer complaints. Inventory Controls The more accurate the sales forecast, the better prepared your company will be to manage its inventory, avoiding both overstock and stock-out situations.

Stable inventory also means better management of your production.

  • The person or persons who prepare the financial statements, called the responsible party, are usually the management of the company but may be outsiders, such as the management of an entity considering acquiring the company;
  • What is the trend with regard to labor availability?
  • The forecast that your sales force provides is the source of information that allows you to manage virtually all aspects of your business;
  • There are many ways to book actuals, and financial teams may want to spend some time determining the best processes for their companies.

Supply Chain Management When you can predict demand and manage production more efficiently, you also have better control over your supply chain. This affords you the opportunities to manage resources and take full advantage of just-it-time ordering.

Financial Planning Anticipating sales gives you the information you need to predict revenue and profit. Having good forecasting information at your disposal also gives you the ability to explore possibilities to increase both revenue and net income.

FINANCIAL FORECASTS AND PROJECTIONS

Internal Controls Having a gasp on the projected production rates for your business makes it possible for you to have better control of your internal operations. By anticipating future sales you can make decisions about hiring — permanent or temporary — marketing and expansion.

  • A rolling financial forecast enables corporate finance teams to project out as the year progresses in order to accommodate trends that affect key business drivers;
  • Stable inventory also means better management of your production;
  • Users establish the nature and scope of the engagement, and only the results of the procedures performed are provided Compilation;
  • Importance of Sales Forecasting About the Author Thomas Metcalf has worked as an economist, stockbroker and technology salesman.

Continuous Improvement Continuous improvement is a goal of many if not most businesses. By forecasting sales and continually revising the process to improve the accuracy, you can improve all aspects of your business performance. Price Stability With solid forecasting, the good levels of inventories that you maintain will prevent the need for panic sales to rid your business of excess merchandise.

Sales may be managed on a thoughtful planned basis.

The Growing Importance of Forecasting

Marketing Sales forecasting gives marketing an advanced look at future sales and offers the opportunity to schedule promotions if it appears sales will be weak. In extreme cases, sales forecasts may lead to discontinuing slow-moving products. Importance of Sales Forecasting About the Author Thomas Metcalf has worked as an economist, stockbroker and technology salesman.