Forecasting involves making predictions of the future. In a business sense, forecasting usually involves estimating the expected sales of your product. Combining the sales quantity with selling price provides you with an estimate of future revenue. The revenue forecast is the critical element for making budget projections like cash flow budgets and pro forma financial statements of profitability. So the accuracy of your sales forecast is important for the financial management of your business.
Due to the uncertainty involved in sales forecasting, you may want to create several forecasts based on best-case, worst-case and expected-case scenarios. This type of analysis can also provide you with a glimpse of the risk exposure of your business.
More information on forecasting is provided in the box at the right.