Forecasting - Regular forecasting is essential for profitability and solvency

Why forecasting is essential for monitoring the state of your business and making sure it meets its objectives.

Forecasting is essential for monitoring the state of your business and making sure it meets its objectives. In particular, cash flow forecasting is essential for anticipating peaks and troughs in financing requirements, so you can stay solvent and plan the most suitable responses to changing circumstances. Solvency is the ability of your business to pay its debts as they become due. Many profitable companies have failed by running out of money as they exceeded their overdraft limit and couldn’t raise more funds.

Financial forecasts let managers experiment with different business scenarios in a risk-free environment and see how alternative decisions might affect their business. As well as anticipating problems in the marketplace, forecasts can also help you spot and act on new business opportunities.

Any forecast will include uncertainty and will be subject to many variables, such as the economy, changing tastes, new technology and competitive activities. Complete accuracy is not important, as forecasting is about anticipating the trends and recognising the unexpected early and putting in place an effective reaction.

Forecasting is important for every size of business, from the self-employed to the largest multi-national corporation. Fast, efficient and regular forecasts will help to create a more stable and profitable business.

Successful companies set realistic long term targets and then manage their affairs on a daily basis to achieve them. Experience has shown the need for three complementary planning exercises - the business plan, the annual budget and short term forecasts. Taken together, they give you control of your destiny and can help convince investors that it is safe to advance new funding.

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Forecasting - Regular forecasting is essential for profitability and solvency