Key Reasons Why Financial Forecasting Is Important

By Author: Bappaditta Jana
Total Articles: 79
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Don't we all agree that prompt financial decisions are hands down the most important part of any small and medium-sized enterprise (SME)? And it is needless to say financial forecasting plays an imperative role in that. It supports budgeting, planning, headcount management, and strategic choices completely. However, many finance teams struggle to make regular forecasts due to traditional, rigid processes designed for quarterly or monthly updates, and the need to combine old data, actual performance, and future market predictions.

Modern Financial forecasting with the aid of popular enterprise resource planning (ERP) software like Tally helps companies mitigate the impact of unexpected events and identify expansion opportunities during favorable periods. With the inception of modern business planning and analytics platforms, financial forecasting can now be more continuous and adaptable. These tools provide finance teams with consolidated, real-time data that includes actuals, enabling more frequent forecasting cycles. As a result, finance teams can maintain monthly or even real-time forecasts, which keeps budgeting and ...
... planning aligned with current financial realities.

Adept Forecasting Leads to Better Financial Outcomes

Financial stability is one of the significant features of any business and adept & accurate financial forecasting heavily affects it. It also leads to improved cash flow and increased access to credit and investment. This, in turn, fosters business growth. A solid forecast enables department heads to plan spending more effectively and helps procurement and supply chain teams prepare for capacity and distribution needs. Sales teams can set realistic targets and benchmarks based on a deep analysis of Debtors Reports, Purchase & Creditors reports, Inventory Reports, and Cost Center Reports.

Financial forecasting for business is also essential for tracking the overall condition of the businesses. Throughout the fiscal year, advanced forecasting tools allow finance teams to assess revenue strategies, consider market factors like inflation and interest rates, and identify all the gaps in alignment across departments. These insights empower teams to make real-time adjustments that can protect financial outcomes.

Kickstarting the Budgeting Process

There are many instances where Financial forecasting and budgeting are being used alternatively. However, it should be kept in mind that they are 2 completely distinct functions. Forecasting serves as the starting point for budgeting by using known data to model possible scenarios. Forecasting informs budget creation, enabling departments to make informed spending decisions rooted in accurate data and projections.

Foundations of Financial Forecasting

Any sort of forecasting, to be adept, should be relied upon three main financial statements, viz, the Income Statement, Balance Sheet, and Cash Flow Statement.

1. Income Statement (Also referred to Profit & Loss): This is a reflection of revenue, expenses, gross profit, and net profit, providing a measure of business performance over a given period.

2. Balance Sheet: This is a report of all the assets, properties, acquisitions, liabilities, and equity for a snapshot of financial health.

3. Cash Flow Statement: This is a financial review that must highlight the cash inflows as well as outflows. It should be a representation of net cash at the fag end of each period.

These three statements offer an in-inclusive view of the commercial endeavor and provide adept information on more advanced forecasting techniques, such as 3-way forecasting, headcount planning, and rolling forecasts.

EasyReports : Making Financial Forecasting Accessible

EasyReports simplifies financial forecasting with an analytics platform built to manage large datasets and run scenarios quickly. This allows businesses to conduct frequent forecasts in minutes.

Conclusion

As far as a business is involved, it is an indispensable guide that helps SMEs with budgeting, planning, and strategic decisions. Efficient business intelligence tools keepswhich keep track of the finances of these companies and assist and make the process of forecasting more accurate.

Bappaditta Jana is a blogger who loves to spend his free time engaging in sports or gardening. Based in Kolkata, he is currently working with EasyReports an IT firm that has developed a BI reporting tool that can easily integrate with Tally ERP and many other applications.