Business Forecasting: Why It’s Important | Divvy

There are a lot of ways to estimate data and scenarios for your company. Each type of business forecast focuses on a specific metric or outcome.

What you want to know or predict about the future will help you decide which type of forecast you pursue.
Business forecasts can range from the general (sales next month) to the incredibly specific (consumer demand for a specific product for the holiday season). Here is a quick run down of the 6 most common types of business forecasts you’re likely to use.

1. General business forecasting
2. Financial forecasting
3. Accounting forecasting
4. Demand forecasting
5. Sales forecasting
6. Capital forecasting

1. General business forecasting

A general business forecast is used to determine the overall business climate for a future date, and can be widely applied and useful for many different businesses and industries.

Used for: Determining overall market conditions and the impact of the environmental factors in which your business operates
Best for: Businesses operating in influential environments, such as countries experiencing political upheavals, major technological advancements, or dramatic seasonal shifts.
Example: Analyzing the impact the 2024 U.S. Presidential election will have on the American economy at large.

2. Financial forecasting

Financial forecasting is about getting a clear picture of where your company is headed. It includes weighing assets and liabilities, accounts payable and account receivable, operating costs, capital structure and cash flow, and general market conditions.

Used for: Tracking the future trajectory of your company as a whole.
Best for: All businesses looking to stay on top of their business’s health through financial projections.
Example: Ensuring

3. Accounting forecast

An accounting forecast is the practice of predicting the future costs which will be incurred by your company, using past and present data to estimate how much your business will pay for raw materials, inventory, man hours, utilities and rent, insurance, and more.

Used for: Determining future operating costs for your business.
Best for: Every business concerned with covering future costs.
Example: Estimating cyclical changes in a seasonal product’s cost, such as fresh produce for a restaurant.

4. Demand forecasting

Your demand forecast will go hand in hand with a sales forecast, as demand forecasts will predict what the market needs or wants and a sales forecast will predict how your business will be able to capitalize on those needs with sales.

Used for: Determining market and customer demand for a good or service in the future.
Best for: Planning how much to invest in raw materials or inventory, deciding if a new product will perform well.
Example: Predicting the demand for a new toy at Christmas so you can buy the appropriate inventory.

5. Sales forecasting

A sales forecast estimates future sales, whether overall or of a specific product or service within your business offerings, based on sales data. Sales forecasting allows your business to anticipate the future needs for workforce, resources, cash flow, inventory, and investment capital. A sales forecast will show the sales revenue your company might expect over the next month, quarter, or year of a sales cycle.

Used for: Predicting your sales for a future period of time, and estimating growth and cash flow.
Best for: Businesses relying solely on sales history, or looking to project sales for investors and funding.
Example: Projecting revenue for the 2021 fiscal year to determine how many salespeople to hire and their commission structure.

6. Capital forecasting

A capital forecast is based on current and future assets and liabilities, as well as predictions for liquid capital and cash flow estimates.

Capital forecasting is tricky, and not as reliable as other forecasts simply because it involves guessing at a number of factors. Capital may involve the following factors:

• Cash & savings
• Assets
• Accounts receivable
• Revenue
• Investment funding
• Lines of credit

Used for: Predicting available capital for a future date or event.
Best for: Companies preparing for investment, growth, hiring, acquisitions, or other changes that will require cash.
Example: Estimating working capital for purchasing a larger office building in the coming year.