THREE ITEMS NEEDED FOR AN EFFECTIVE FORECAST

The three items needed for effective forecasting are:

1. The twelve-month profit and loss. This report will let management know in advance if anticipated financial activities will produce a profit or not. It will also serve as a guide during the year as to whether expenses are under control or not. It is also great for looking at future tax requirements.

2. The twelve-month cash flow. This is the report that will let management know well in advance how much cash they will need and when they will need it.

3. Forecasted balance sheets for each month of the forecast. This report is the most neglected and is extremely important in the forecasting process. It tells you whether the other reports are realistic.

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