Financial Forecasts – A Lenders View (part 1 of 3)

Financial Forecasting – Setting The Scene

Forecasting involves making the best possible judgement about some future event.  It is no longer reasonable to rely solely on intuition or one’s feel for the situation, in projecting sales, inventory needs, staffing requirements and other important economic or business variables.

A forecast is what it says on the tin. It is a projection of how a proprietor feels their business will trade over the coming twelve months, an educated guess if you like. However, we need to know what assumptions have been made to assess whether or not this is a realistic assessment of the future activities.  More importantly you need to know and understand what the intentions are over the next twelve months and what monitoring procedures are to be put in place to ensure that this forecast is on target and remains realistic as time goes by.

It is not just about figures either, it is about people and how effective they are at their job.  We have all met those that talk a good case, but do they produce the goods at the end of the day? How reliable are they and how effectively do they complete the job?  You need to assess this at the outset, are you provided with promises with no end product, i.e. “You will have the figures by Monday” yet they do not arrive and you have to chase.

This should start to raise doubts in your mind and when they do arrive, start the drill down process. Do not accept things at face value, whilst it is a projection, it needs back up information to support.