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A forecast is a data-backed estimate of your company’s future financial performance. It can be important for making educated investment decisions, creating realistic budgets, and avoiding a cash flow crunch.
Forecasts can incorporate broader market expectations, such as industry benchmarks or how changing interest rates could impact your sales. But they should also be based on your historical records and what you know about the coming year, such as the seasonality of your business and upcoming marketing campaigns.
Creating a budget and forecasts should be annual exercises, at a minimum. But it’s also an ongoing process as you may want to compare your forecasts to actual results and then make revisions or set new goals. Investors may also review your forecasts to better understand your business — and to evaluate how well you understand the business.
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