Companies try to make informed decisions to deal with whatever challenge or opportunity may be around the corner. But they don’t have a crystal ball.
To plan for the future, forecasts and projections are the two types of prospective financial statements we provide as part of our Assurance Services.
Operational Changes Require Financial Impact Scenarios
Changes in business conditions – or the desire to expand – create the need to consider the impact of alternatives. If concerned with estimating future operating results based on an existing situation only, we can use a forecast to present that information. A forecast is your estimate of future results and is based on assumptions reflecting conditions you expect to exist and the course of actions you expect to take. It can take the form of a specific amount or can be a range. As an example, when you create a sales forecast, you include sales for various products for each geographic location and type of customers, as well as sales, distribution, and advertising costs.
Financial Impact Scenarios Based on Assumptions Reveal More
If you would like to consider different scenarios, projections based on hypothetical assumptions may be more useful. A projection presents your expected financial position given one or more hypothetical assumptions. It often answers the a "what if' question. A projection, like a forecast, may contain a range of results based on the hypothetical courses of actions. Projections are quite useful when you want to test how a hypothetical, such as changing the product mix of sales or changing price levels, might impact financial results.
You can use projections:
· To obtain financing by showing prospective lenders how your company will repay debt
· To show potential investors how the additional capital invested will result in an increase in company value over time or provide a return on the investment from operations
· To assist with decisions regarding expansion, investing in property, starting a new line of business, or terminating an existing product or service
Projections and forecasts are based on assumptions, which should be clearly presented so a user of the prospective financial information can evaluate their reasonableness. While forecasted financial information can be for general use, projected financial information must be restricted in use.
More Credibility If OFWF Plays a Role
We can assist in the preparation of forecasts and projections in a variety of ways. Whenever you have a need to plan for the future or evaluate alternative plans for your company’s operations, you can use prospective financial information decision making tool. And third parties, such as lenders or investors, may give prospective information more credibility if the accountant plays a role in reporting on that information. Allow us to help.