How to forecast your financial atmosphere for next quarter

Introduction

As your business grows, it will become more and more important for you to be able to forecast your financial needs and project future financial statements.This is especially true if you are making an investment proposal.You need to be able to tell investors what they can expect out of your company so that they can decide whether to invest in you.You will also be expected to forecast finances for you company if you are employed as a financial analyst or financial officer.

Instructions

Difficulty:Medium

Steps

Step one:Review past performances.The greatest key to the future is what has happened in the past.When you are trying to predict your financial atmosphere for the next quarter, you should look carefully at the current financial atmosphere.You should probably not expect the future to look much different from the present, at least not without a really good reason.The other thing that you wan to review when you are reviewing past performances is the yearly trends.If for the past ten years you have surged in the fourth quarter, you can reasonably expect that you will surge again in the fourth quarter this year.History does tend to repeat itself.

Step two:Analyze the market.There are few businesses that the market does not somehow influence.Study carefully what is expected of the market in your area.If the market has been moving steadily upward or downward, you can reasonably expect it to continue doing so for another quarter.However, if the market has been erratic, you can expect that to continue as well.It isn't just the market for the commodity or service you are selling that you should attend to.Also pay attention to the market as it relates to the materials that you use in your business.The market should be something that you study constantly if you are responsible for financial forecasting.

Step three:Estimate future sales.To estimate sales you should look at not just past performances but also look at the contracts that you are currently working on, at how many contracts will expire during the quarter, and at how many you expect to renew.It is a good idea to look around at what is happening with your competitors when you are trying to estimate future sales.Ask yourself what, if anything, is happening with the competition that could influence your sales projections.

Step four:Estimate costs.Once you have estimated your future sales, you will be in a good position to estimate your future costs.Your sales are a direct predictor of your variable costs.Especially if you are involved in retail, manufacturing or distribution.Your different field of business will dictate how you estimate costs.For example, if you are in manufacturing, you will need to estimate the price of raw materials for each production and times that by the amount of items you intend to produce the next quarter.

Step five:Re-estimate for a worst-case scenario.The first set of sales and cost estimations should be for a good case scenario.It is a good idea to get a range of possibilities when trying to forecast the future.Make a second set of estimations based on a more pessimistic scenario.

Step six:Subtract the costs from the revenue.To estimate the bottom line, you should subtract the costs from the sales.Do this for both sets of projections (the optimistic and the pessimistic) and assume that your total revenue for the quarter will fall between those two numbers.Total revenue will be the main predictor of financial atmosphere in the subsequent quarter.