How forecasting can help you manage your business better?
While everyone hopes for the best, reasonable projections are much more important in managing a business. That's the idea behind a pro forma.
A pro forma is an analysis that projects the future impact of a loan. It helps determine how much additional business you need in order to repay the loan.
By projecting the impact of a business decision on future profits, a pro forma is perhaps the best measure of the ratio of return versus risk. This is just as important for you to know as it is for us.
A Measure of Potential
For your business, it's a matter of evaluating the opportunity.
- Will this venture - whether an entrance into a new territory, an expansion of production facilities, a product line extension - pay for itself?
- Will additional capital help take your company to the next level?
- What will the loan really do for your business?
If the forecast leads to satisfactory answers, you can approach your financing needs with confidence. It does much the same for your bank. A strong forecast shows that your company is not taking a risk it cannot afford. So the loan is much more likely to be approved.
Even in instances that don't involve a loan, a thoughtful and accurate business forecast is vital to your company. By evaluating the revenue impact of any action, you can decide whether that course of action is likely to help or hinder your objectives, so you can plan accordingly.
In short, looking ahead helps you plan ahead, which is critical to the success of any business