Financial forecasting and how it works in SimVenture

Definition: Forecast is a « prediction of a future state of the environment. » (Laney & Latrill, 2014) .

Financial Forecasting is about financial item: prediction of sales incomes, expenses, cost of goods and cash flow

What is Financial Forecastings ?

Sales ForecastUsed to predict income from sales

Profit and Loss forecastUsed to predict how profitable you will be

Cash-flow forecastTo predict when cash will flow into and out of

your business

Key Financial forecasts

“Leading organisations widely acknowledge that forecasting is at the heart of the performance management process, and is potentially a significant driver of business value and investor confidence.”

“CFOs of leading organisations use the forecasting process to identify opportunities to drive business improvement, to determine growth strategies, and reinforce external stakeholders' confidence in the business with the transparency, visibility and integrity of their financial projections.”

Scott ParkerHead of Financial ManagementKPMG International

Why do we use financial forecasts?

• No business can be run successfully without a firm grasp of how the business is doing financially.

• Forecasting can help companies plan ahead and remain healthy in all conditions.

• Financial forecasts assist in managing your finances. They are a future prediction of your business finances.

• Predicting the financial future of your business is not easy, especially, if you are starting a business and do not have a trading history. However, forecasting and making adjustments frequently will enable you to become more accurate.

• Regular forecasts allow you to closely monitor your finances and develop strategies to fix problems before they become major issues.

Why do we use financial forecasts?

Marketing people need forecasts to estimate the expected demand that will be generated from the activities.

Sales people use forecasts to understand what volumes are expected in each period and to evaluate the sales pipeline activity to make sure it supports those expectations.

Managers in the supply chain use forecasts to make timely purchasing requests, develop production plans, evaluate capacity needs, and develop logistical plans.

Finance professionals use forecast to prepare and understand financial plans.

Who uses financial forecasts?

How forecasting works in Sim Venture

Accessed from the forecasting section of the menu page Simple Report

Detailed Report

Other financial reporting tools

• Clicking on Overview will give you access to financial reporting charts

• SimVenture also allows printing of financial forecasts

How do you access the financial charts in SimVenture?

A) Under the forecasting heading of the menu section.

B) In the history section. C) In the overview section. D) There are no charts in SimVenture.

MCQ`s

Which one of the anwers below is not a financial forecasts ?

A) Sales B) Budget C) Profit and Loss D) Cash Flow

MCQ’s

What is a forecast? A) a plan used to decide the amount of

money that can be spent and how it will be spent.

B) reporting on previous income and expenditure.

C) A prediction of the weather. D) A prediction of a future state of the

environment.

MCQ`s

References

Laney, E. M. & Latrill, P., 2014. Accounting and Finance An introduction. 7th éd. Harlow: Pearson.

Small Business Development Corporation, 2015. Financial forecasts. [En ligne] Available at: https://www.smallbusiness.wa.gov.au/business-topics/money-tax-and-legal/money-matters/financial-forecasts-2/[Accès le 26 January 2016].

UK government, 2014. Forecast your business finances. [En ligne] Available at: https://www.gov.uk/forecast-business-finances[Accès le 26 January 2016].

What is the difference between a budget and a forecast? - questions & answers (2013) Available at: http://www.accountingtools.com/questions-and-answers/what-is-the-difference-between-a-budget-and-a-forecast.html (Accessed: 3 February 2016).

Player, S. (2010) Why forecasting?. Available at: http://businessfinancemag.com/blog/why-forecasting (Accessed: 3 February 2016).

Epstein, Lita. Business Owner's Guide to Reading and Understanding Financial Statements : How to Budget, Forecast, and Monitor Cash Flow for Better Decision Making. Hoboken, NJ, USA: John Wiley & Sons, 2011. ProQuest ebrary. Web. 3 February 2016. Copyright © 2011. John Wiley & Sons.

Referencing

Parker, S. (2007) Forecasting with confidence insights from leading finance functions ADVISORY. Available at: http://www.kpmg.com/dutchcaribbean/en/services/advisory/documents/forecasting-with-confidence.pdf (Accessed: 8 February 2016).

Beattie, A. (2011) ‘The basics of business forecasting’, in Available at: http://www.investopedia.com/articles/financial-theory/11/basics-business-forcasting.asp (Accessed: 8 February 2016).

References