Forecasts Vs Projections

Financial Forecast

The AICPA defines financial forecasts as “Prospective financial statements that present, to the best of the responsible party’s knowledge and belief, an entity’s expected financial position, results of operations, and cash flows.” In other words, financial forecasts are financial statements built to reflect what your company’s financial standing will be in the future, given that all variables stay on their normal course of action.

Financial Projection

The AICPA defines financial projections as “Prospective financial statements that present, to the best of the responsible party’s knowledge and belief, given one or more hypothetical assumptions, an entity’s expected financial position, results of operations, and cash flows.” In simpler terms, a financial projection is used to test one or more hypothetical situations, for example, “What would happen if our rent increased 5% next year?” or “What would happen if our sales dropped by 3% next week?”

Types of Financial Forecasts We Provide

Depending on your objectives and needs, there are several types of financial forecasts we provide.

Cash Flow Forecast

A cash flow forecast projects the amount of cash that will flow in and out of your business, including where it goes and when it is received or spent. Our cash flow forecasts typically cover the next 12 months, but the timeframe can also be reduced or extended. We use cash flow forecasts to determine when your cash flow will be positive and negative which can help to strategically schedule purchases and expenses. For example, when expanding your operations or ordering a new piece of equipment, a cash flow forecast can help find the optimal time to execute these activities without putting a burden on your operations.

Sales Forecast

A sales forecast is used to project future sales. Accurately forecasting your sales is a critical component of effectively managing your resources, inventory, human capital, and cash flow. To create sales forecasts for established companies, we heavily rely on historical data. For newer companies, we must also look at external information, such as market research and economic trends. Sales projections are completed on a month-by-month basis for the next 1-5 years. As with all of the forecasts, detailed sales forecasts are necessary when dealing with outside investors.

We know creating forecasts and projections can be scary. With so many variables and unknowns, it is hard to know if your predictions are accurate. Having worked with small and medium sized businesses spanning many varying industries, we have the market insights and competitor knowledge to create your forecasts and predictions within narrow margins of error. If you are interested in examining the future financial state of your business, get in touch with us.