Financial forecasting in business assists in making good financial decisions. It is the process of predicting or estimating how a business will perform in the future. Furthermore, the most common type of financial forecast is an income statement. Financial forecasting involves determining the expectations of future results. A company that conducts financial forecasting seeks to provide a means for the expression of its goals and priorities to ensure that they are internally consistent. Additionally, it assists a company to identify debts and assets that it needs to achieve these goals and priorities.
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THE ADVANTAGES OF FINANCIAL FORECASTING IN BUSINESS
Financial forecasting in business demonstrates the financial viability of a new business venture. Additionally, it is an essential part of planning, operations, budgeting, and funding to help the management to make good financial decisions. It provides a benchmark against which a company measures its future performance. Financial forecasting also allows a company to measure its actual financial operation against the forecast financial plan and make adjustments where necessary to address its goals and priorities. Furthermore, it provides an estimate of future cash needs and whether the business requires additional funding.
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THE STEPS TO MAKING GOOD FINANCIAL DECISIONS
To make good financial decisions, a company needs to perform a financial statement analysis. This helps the management to gauge the performance of the company basing on the goals and priorities that they set. Moreover, a company needs to get accurate and timely financial data before making long-term financial decisions. Financial forecasting in business is also crucial to determine the future performance of the company. Finding the optimal staging level and effectively managing the recruitment of new staff enables the company to maximize productivity while minimizing the cost of labor.
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