TIPS FOR EVALUATING MANAGEMENT FORECASTS

Annual budgeting and planning process: Annual budgeting and planning is like creating a financial roadmap for the year ahead. Businesses use it to figure out how much money they’ll make and spend. It helps them plan for things like hiring more people or buying new equipment.

Decision Making on key changes to the business: When a company wants to make big changes, like expanding to new markets or launching a new product, they need to predict if it’s a good idea. Forecasting helps them see what might happen if they make those changes, like how much money they could make or lose.

Financing purposes: Sometimes, businesses need to borrow money or get loans to run smoothly. Forecasting helps them show the lenders that they’ll be able to pay back the money with interest.

Attracting investor capital: If a company wants investors to give them money, they need to show how profitable they can be. Forecasting helps attract investors by painting a picture of future profits.

Financial statement purposes: Companies need to prepare financial statements for their stakeholders, like shareholders or the government. Forecasting helps them estimate what these statements will look like in the future.

Uncertain Expenses: Not all expenses are clearly defined.  For instance, a business may be looking to expand to another country & uncertain the incorporation costs, or be part of ongoing litigation that a settlement may need to be accrued

Liquidity Analysis: This is similar to checking if a business has enough cash to pay its bills. Forecasting helps see if there will be enough money to cover upcoming expenses.

Other ad hoc analysis: Sometimes, businesses need to figure out things on the spot, like analyzing a sudden market change or a unique situation. Forecasting can be adapted to tackle these unexpected challenges.