Forecasts & Projections

What are Forecasts & Projections?

All financial documents or files containing projections of the financial performance of the business prepared recently by or for the management team.

A financial forecast is a forward looking projection of the financial performance of a business based on information available today including past performance, current market conditions, the business outlook and the current project pipeline.

While anyone can simply take a guess at the future results of a business, users require a robust and detailed analysis from which to make quality decisions

Why are Forecasts & Projections important for business today?

Financial forecasts are a decision making tool. Senior management within the business can use financial forecasts to make decisions on strategy, project investment, funding requirements, staffing allocations, tax structuring and more. Higher quality forecasts lead to higher quality decisions.

Why are Forecasts & Projections important for an event tomorrow?

Whether your deal involves fund raising or change of ownership, investors cannot base their assessment of the business purely on the basis of historical information.

Ultimately, investors are primarily focused on future cash flows to support their investment decisions. The more confident investors are about these future cash flows, the better the terms they will offer.

They will base this assessment of the quality of the future cash flows on 3 key factors:

• How robust is the process used for forecasting?
• How reasonable are the assumptions that have been made?
• How accurate have their past forecasting efforts turned out to be?

Having a good track record of accurate forecasting based on a quality process and defendable assumptions is critical to deal success. Therefore it is important to begin optimizing your forecasting technique well before preparing for a transaction to ensure a sufficient track record can be established.

Pros of addressing Forecasts & Projections

• Supports better strategic decisions
• Supports a more accurate budgeting process
• Enables better funding decisions
• Enables better project investment decisions
• Allows staff to be allocated to the areas of the business with the most potential for earnings growth
• Improved tax structuring decisions based on likely cash flows

Cons of not addressing this topic

• High return projects receiving insufficient funding and support
• Low return projects receiving too much funding and support
• Staffing levels being significantly above or below those required to support the business
• Internal operational costs not optimized for the resulting volumes of products or services processed