Our Chapter 4 discussion will focus on the purpose and benefitsof financial forecasting.
Commonly, financial forecasting is being used in a variety ofbusinesses to control any upcoming risks, thereby assisting inmaking essential adjustments before issues will occur. In order forcompanies to efficiently accomplish their goals, whether it is ashort or long-term one, the need for a capable strategy to managethe desired outcome is required. In general, short-term forecastsare formed for tactical reasons in a seasonal period of time (6months or less). For example, Mr. Smith, who just established hisown start-up smoothie shop 4 months ago. The business did not bringany profit and only increased its debts because of old operatedequipment and salaries that the owner had to pay for his vastnetwork of employers. Based on the poor performance, Mr. Smithdecided to reconsider the production planning and control over theproducts manufacturing in advance to receive sales fluctuations. Heinvested in almost brand-new equipment, updated the menu forsmoothies, and convinced his family to work in his business untilthe inventory occupies its expenses within 3 months. This strategycan be very significant for further production and business growth,while the general trends may be of less consequence. However, ifthe smoothie business would not still reach its financial goalafter 3 months and receive poor sales return, the business willexpect a negative impact on losing its credibility. Moreover, ifbusinesses are unable to meet demand, it causes the unsatisfactoryexperience of customers, which eventually leads to further loss ofsales down the line.
As for long term forecasting, business individuals areaccountable for moving forward its mission and vision and can beaccomplished from planning ahead from 6 months to years and more.Objectives may include detailed improvements in the company’scompetitive position, profitability, return on investments, etc.All in all, the main criteria in following the forecast is forbusinesses to have an accurate and realistic management processalong with implementing an effective decision making based on theplanning.
Using the discussion area, describe how forecasting caneffect the short and long term goals of the organization. Inanswering please give some thought to how the lack of forecastingcan negatively affect a business.
