Financial Forecasting

Written by Rachel Arieff
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Financial forecasting is a crucial tool for running any business. The changes you make in your business will naturally affect different aspects of the organization. Included among these is the impact on your business's future financial performance.

Thus, financial forecasting is in essence a method of predicting how organizational changes will affect the financial performance of your business. Forecasting is done through the creation of financial models. Of course, not just anyone can build a good financial model. It's a complicated equation involving many factors.

What Goes Into Financial Forecasting

A financial model should break down every major COG and revenue center for the business, as well as operating expenses and cost centers. It should accurately calculate the costs of salaries, bonuses, and benefits. It should also include capital expenditures, along with an integrated income statement.

A statement of cash flows and a balance sheet should also be part of your company's financial forecasting model. Above all, your financial model should be accurate yet flexible. Finance-related forecasting should never be applied to your company in a cookie-cutter, template fashion, but rather be tailored to your company's unique situation.

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