Financial forecasting is a process of projecting future financial requirements of a firm. Financial forecasts assist in managing your finances. They are future predictions of your business finances, as compared to statements, which provide details of actual results of progress. The financial manager is concerned with the futurity of financial performance. The forecasting process provides the means for a firm to express its goals and priorities and to ensure that they are internally consistent.
The advantages of the financial forecasting are noted below:
(i) It can be used as a control device in order to fix the standard of performances and evaluating the results thereof,
(ii) It helps you to make a blueprint for your business so that the incurring expenses can be controlled for the gain of your business,
(iii) It helps to explain the requirement of funds for the firm together with the funds of the suppliers,
(iv) It helps in recognizing the risks and financial crunches in the business so that the necessary arrangements can be made to save the business from running a loss,
(v) It also helps to explain the proper requirements of cash and their optimum utilization is possible and so surplus/excess cash, if any, invested otherwise,
(vi) It gives an assessment of the future need for cash and enables you to take a decision about whether money should be borrowed or not,
(vii) It assists you to secure a bank loan or other funding, lenders and investors require financial forecasts to show your capacity to repay the loan,
Forecasting also helps in targeting marketing. With financial prediction and planning well ahead, you can concentrate on low priced guerilla marketing during slump periods and aggressive expensive marketing when cash is available.
Financial planning, on the other hand, is nothing but one part of a larger planning process within an organization.