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What is Forecasting?

Forecasting (Definition)

Financial forecasting is the process of predicting how a business will do in the future, based on how things have worked out in the past and how things are going right now. It estimates how much money a business will make and how much money it will spend, looking at the long and short term effects, along with economic conditions, contingency plans, and much more. Forecasting helps business owners to plan their annual budgets and cash flow, set realistic business goals, and determine any problem areas.

There are four types of forecasting:

  • Sales forecasting: Predicts how many products and services you think your business will sell in each fiscal period.
  • Cash flow forecasting: Establishing how much money a company will make and spend over a certain amount of time. It is more accurate over a short period of time.
  • Budget forecasting: Used to figure out the budget if everything goes according to the business owner’s plans.
  • Income forecasting: Using the company's past revenue performance and current growth rate, income forecasting helps you figure out how much money the company will make in the future.
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