Fin200 Financial Forcasting

Financial Forecasting
Financial forecasting allows managers to plan for the unexpected.   There are two methods to financial forecasting, pro forma and percent-of-sales.   Although these methods differ, the information is used by all kinds of businesses.   The use of forecasting can differ from one company to the next and we will discuss its use for a new company, a family based company, and a long standing company in the following paragraphs.
The purpose of financial accounting is to prepare the company for unforeseen events.   For a new company, the unforeseen events are hard to determine while others are quite clear.   The basis of forecasting is establishing a sales projection.   Without a sale projection, all other information is inaccurate.   A new company will not have the prior year’s information as a large standing company will have therefore their forecasting will not be as exact.   Exact or not, the use of forecasting will help the new company figure out where their profits need to be allocated in order to raise more profits.   When forecasting, it is important to remember that the profit will not be adequate to cover all expenses and therefore deciding on how to fund the future sales must also be determined.   This is important for a family based business if they have fewer funds to utilize and fewer inventories kept on hand.   The new company must use the forecasting to set sales projections and goals for staff while using the forecasting results to stay on target that first year.   It will help managers to adjust as needed when the sales drop or rise.
Family based companies are quite different.   Their funding options can be different and how they run the business can be different.   Since most family run businesses need to keep a low overhead to make a greater profit, generating a forecasting will help give the business owner an overall look at the company.   If they experience specific times when sales are low and other times when they are generally high, that...