How To Do Financial Forecasting?

March 26, 2023

Have you ever wondered how successful businesses and individuals manage their finances so efficiently? One of the critical factors is financial forecasting.

Financial forecasting predicts future economic outcomes based on historical data and current trends. It is an important component of financial planning. Moreover, it allows businesses and individuals to plan for their financial goals and objectives. It is helpful for everyone, from corporate owners and analysts to those just trying to keep their finances in order.

How do you do financial forecasting?

1. Gather historical financial data

The first step in economic forecasting is to gather historical financial data. This data can include revenues, expenses, profits, and losses.

More information means a more accurate economic prediction. Documents, including income statements, balance sheets, and financial statements, should all be gathered.

2. Examine trends

You must examine the patterns after you have obtained historical financial data. It involves identifying patterns and trends in your financial data.

You can use graphs, charts, and tables to visualize the data and identify trends. Analyzing the trends in detail is essential to understanding the factors that contribute to them.

3. Identify critical drivers

Once you have analyzed the trends, you must identify the key drivers contributing to them. These drivers can include factors such as sales growth, changes in customer behavior, and economic conditions.

It is crucial to identify the drivers accurately to make informed decisions about your future financial objectives.

4. Develop financial models

After identifying the key drivers, you need to develop financial models. Financial models are mathematical representations of your financial data. They can be used to predict future financial outcomes based on different scenarios.

For example, you can develop a financial model to predict sales growth for the next year based on other economic conditions.

5. Monitor and adjust

Financial forecasting is not a one-time process. It requires continuous monitoring and adjustment.

You must review your financial forecast regularly to ensure it is accurate and up-to-date. If necessary, you may need to adjust your projections based on changes in business or economic conditions.


Examples of financial forecasting in the USA/Canada, UK, and India

USA/Canada

In the USA/Canada, financial forecasting is crucial for businesses of all sizes. According to a report by Deloitte, 81% of US businesses use financial forecasting to plan their financial objectives. Financial forecasting helps companies make informed decisions about their investments, budgeting, and resource allocation.

One example of financial forecasting in the USA/Canada is using predictive analytics in the retail industry. Predictive analytics aims to foresee how customers will act in the future. Predictive analytics can help retailers correctly estimate sales and stock levels. It helps them make informed decisions about stock levels, promotions, and pricing.

UK

Financial forecasting is essential for businesses to survive and thrive in the UK. A study by the Institute of Chartered Accountants in England and Wales found that 95% of UK enterprises use financial forecasting to manage their finances. UK firms use financial forecasting to plan and invest.

One example of financial forecasting in the UK is scenario planning in the healthcare sector. Scenario planning involves creating different scenarios based on various assumptions. UK healthcare providers use scenario planning to predict future demand for healthcare services. It helps them plan for future healthcare facilities, equipment, and staff investments.

India

In India, financial forecasting is becoming increasingly crucial for businesses and individuals. According to a report by PwC India, financial forecasting is essential for companies to manage their cash flow, investments, and growth. It helps companies make informed decisions about their future financial objectives and identify potential risks.

One example of financial forecasting in India is cash flow forecasting in agriculture. Cash flow forecasting involves predicting future cash inflows and outflows. Farmers in India use cash flow forecasting to plan their crops, fertilizers, and equipment investments. It helps them manage their cash flow effectively and make informed investment decisions.


Latest statistics

The market for financial forecasting software is anticipated to reach $1.31 billion by 2025, rising at a CAGR of 10.2% from 2017 to 2025, according to a study by MarketsandMarkets. It draws attention to the increasing need for software and tools for financial forecasting in organizations of all sizes.

Predictive analytics will grow tremendously in the USA and Canada over the next several years. The worldwide predictive analytics market is expected to reach $23.5 billion by 2025, expanding at a CAGR of 21.8% from 2020 to 2025, according to a MarketsandMarkets analysis.

In the UK, scenario planning is becoming increasingly popular in businesses of all sizes. According to a survey by Deloitte, 59% of UK businesses use scenario planning to predict future outcomes and make informed decisions.

In India, cash flow forecasting expects to grow significantly in the coming years. According to a report by KPMG India, cash flow forecasting is essential for businesses to manage their finances effectively and make informed decisions about their investments.


Wrapping up

Financial forecasting is essential for businesses and individuals to plan for their future financial objectives. It involves gathering historical financial data, analyzing trends, identifying key drivers, developing financial models, and regularly monitoring and adjusting the forecast.

Financial forecasting helps businesses make informed decisions about their investments, budgeting, and resource allocation.

In the USA/Canada, the UK, and India, financial forecasting is becoming increasingly crucial for businesses and individuals to manage their finances effectively and identify potential risks. By using financial forecasting tools and software, companies and individuals can make informed decisions about their future financial objectives and achieve their financial goals.

We are optimistic that after reading this blog, you have a fair understanding of how to do financial forecasting for your business. However, if you still have any doubts, GJM & Co. can assist you in financial forecasting and help you make informed decisions about your future financial objectives.

For US, CANADA, & UK: Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.

For INDIA: Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.