How important is it to forecast and analyse business risk?

A common story that we get to hear in sales is how someone met/did not meet the forecasted numbers. So what is forecasting? Why is it important?

What we need to understand is that forecasting is not a wild guess/assumption that is made. Instead, it is a number that is arrived at after a well-informed process is followed. It helps us in myriad ways and here is a look at some of the reasons why forecasting and analysing business risk is pertinent.

Helps in Understanding Demand

Before entering into a business, it is important to have an idea about the demand for the product/service that you have to offer. Research plays a crucial role in the process of forecasting. It also collects enough data to give you a clear-cut idea about the market demand.

Forecasting helps you in getting information about the anticipated demand and this helps you in being better prepared for the launch of your product/service. Your production is therefore planes.

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Helps Manage Financial Planning

Another vital point in any business is to be able to get a fair idea of your finances. Forecasting can help you in predicting your profit and revenue. This will help you in deciding things like hiring, growth, investment required etc.

Apart from this forecasting is needed to receive financing for new start-ups or even to fund an existing one. Your investor will seek an estimate of your sales/business before they agree to invest.

Helps Manage a Planned Inventory

Forecasting is particularly important for small businesses because losses due to unsold inventory may impend the company’s existence. Forecasting reduces uncertainty and also the risk of excess inventory, reduced profit or other specific risks. It gives one an idea about how much stock the business needs at a particular point.

This will help you save on other costs including that of the warehouse as well as transport. At a low sale period, a surplus of goods would mean reduction in price. By getting a fair idea of the demand, one can plan the stock in accordance of the demand.

Also Read: How to Start a Small Business in India

Helps to Learn from mistakes

One key learning for companies is via the past. Forecasting involves historical data and representation. This will help in predicting the future and an analysis of the past can help companies predict what will happen in the future.

Past trends/sales andrisk factors can help companies in being prepared for the future. The patterns visible in the past will help companies to be more prepared for the future direction that it takes. This will make your business more durable and lucrative.

Helps in Strategic Marketing

Forecasting and analysing business risks will prepare us for slack periods in businesses. That is how one can plan for strategic marketing. One can plan promotions and time them in such a manner so that it helps in promoting sales during slumps.

This will also give the business a warning in case the products have to be discounted in case they are slow moving.

Helps in Future Prediction

Forecasting regularly helps in ensuring that companies look ahead and is future focussed. Changing market trends will be something that they are already prepared for. One can also prepare for peak periods where sales will be high and ensure that the demand is met.

Thus in any business forecasting and analysing business risk plays a crucial role. Even though forecasting is a time consuming process, it is definitely worth it.

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