Forecasting Profits In Business

profit_forecastWhen planning the route to success for your business, profit forecasting is a process you will always use no matter the size of your organization. Be it a family owned small business or an international corporation, projecting how much profits you will make in one, two or ten years period is to be one of your top priorities as a manager. This act of “looking into the future” is made available by analyzing actual results from past years and serves the purpose of predicting how much profit the company will make at the end of a previously established time period.

There are quite a few variables that determine the outcome of the forecasting which we can put in two groups;

  1. Company reports

A very important part of the process are the reports that your business reporting software produces which data is essential to establishing a correct picture of the organization`s financial and operational health. Two commonly used forms for forecasting profits that are produced by mining the data from the business reports are the cash flow and the Pro Forma income statements. The purposes of these documents can be divided into two groups;

  • One is external and concerns the need to present potential investors and creditors, such as banks and other financial institutions, with the projected capacity of the company for future incomes and profits.
  • The other is internal and serves the owner or the manager of the company who will have the opportunity to act on time if they see that business is not going in the right direction, financially speaking.

 

  1. External determinants

A business does not operate as an island; it is always dependent on its surroundings such as competition, industry trends, overall economic situation, population trends, the amounts of products and services that are demanded and offered in return on a global note etc. All these factors will have their say when a company devices it`s profits projection for the future.

Generally speaking, profit forecasting produces many benefits when used properly and with a certain amount of companywide dedication, here are just a few of the plus side points;

  • Cross-departmental coordination of goals and actions. With a unified projection of where you want to be as a company in a year time from now, it gets easier to communicate the ultimate goal with your various organizational units.
  • Goals will increase motivation. When there are firmly set goals accompanied with predicted ways how to get there, managers will have an easier task of motivating employees to do just that, work towards the common objective, profit for the company and a successful and rewarding working environment for all of the contributing members of the organization.
  • Adds value to your business reporting software. The reports produced will not only serve you to inspect your current financial situation but also to see ahead and plan and take actions in order to maximize profits.