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The Importance of Business Forecasting

written by: theMallorys•edited by: Ronda Bowen•updated: 2/4/2011

Business forecasting allows you to know when to take more risks, and when it’s time to tighten your company’s belt. Learn all you can about why you should be making business forecasts.

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    Why Worry about Business Forecasting?

    woman on laptop 

    When done right, business forecasting can make your business more profitable. It is more than simple prediction; rather, business forecasting involves analyzing information about your business, the economy, the market place and current trends to prepare for your business’ future. The other option is not to engage in any forecasting at all, and just wing it. Your family, investors and even your long term customers may not appreciate that approach. Understanding the significance of forecasting may motivate you to do it more often.

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    What Is Business Forecasting?

    Business forecasting is a method that you can use as a business owner to predict future business activities based on data. You can use it to determine future trends in sales peformance, finances and customer behavior. You should try to do it on a quarterly basis, but some business owners work on forecasts on a monthly basis. It's important for business planning, business success and business management. There are a number of different methods and ways to do this, and how you decide to do your forecasting is up to you.

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    Business Planning

    You can end up with many problems if you don’t plan your business. Writing a 50 page business plan may not be your cup of tea, but you should have some outline of where you’re headed. It’s almost impossible to come up with a plan without doing some business forecasting. For example, if you’re a startup business, you don’t really know how much in sales revenue your business will generate. The only way to complete your plan is to forecast your sales and the number of clients you anticipate. It should not pull numbers out of thin air, but rely on industry statistics and other information to make the best forecast possible.

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    Business Success

    One major part contributing to the importance of business forecasting is that you’ll improve your ability to become successful in business when you do it. Veteran business owners make forecasts on a regular basis, and new business owners can experience many of the same benefits if they would do the same. The correlation between forecasting and business success is simple. You will make better decisions as a result if you analyze historical performance and try to predict future performance. You can achieve more success when you become good at making business decisions after careful deliberation, instead of reacting to crises or circumstances.

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    Business Management

    There will always be external factors that will impact your business, because you can’t operate it in a vacuum. Forecasting will allow you to manage negative factors that threaten your business launch or expansion. It will help you to prepare for those external factors, which may include earning additional revenues and getting more aggressive about increasing your business savings. Forecasting may also lead you to make necessary capital investments so that you don’t lose to competitors. If you don’t plan well enough ahead, you may not have the funds, resources or people that you need to help you navigate tough economic or industry related conditions.

References

  • MicroStrategy: Business Forecasting: http://www.microstrategy.com/business-forecasting/
  • Image Credit: Matthew Bowden
  • MikeHolt.com: Business Management - Business Forecasting: http://www.mikeholt.com/mojonewsarchive/BM-HTML/HTML/Business_Management_-_Newsletter_06~20020724.htm