Why your business needs a forecast

Running your business, you may feel that looking at what has already happened is the best way to project what will happen next. In reality, though, it’s not the best way to operate. Looking ahead to the future with the help of the present will give you a solid idea of how you’re performing, and where you need to ramp things up. You need to be sure that more cash is flowing into your business than flowing out, and you’ll only know this if you forecast.

So when you’re operating day-to-day, and have plans for your business to stand the test of time, you need to be forecasting both short and long-term.

Short-term forecasting

If you’re looking ahead to a short-term, perhaps a year or under, then you’re just looking at what will happen immediately. You’re probably already doing this to an extent as you always need to know how things are looking so you can judge what decisions to make about investing in new stock, or similar. A great example of a short-term forecast which would last a month or two is in retail.

Let’s say you’re putting on a sale to get rid of some of your old stock. You’d put the new reduced prices into the forecast to see how much revenue you’d get from it, for example.

Read the entire article.