Forecasting is a necessity. In order to do a good job of financial forecasting, management should develop a comprehensive set of projected financial statements. These projected financial statements, called pro forma financial statements, help forecast future levels of balance sheet accounts as well as profits and anticipated borrowing. These pro forma financial statements are the financial plan to effectively manage and lead a business to profitability. For simple projections to complex financial modeling, the basics of financial forecasting remains the same. Management must develop the talent to plan ahead. It is one of their essential talents if they want their business to succeed. It is important to realize that profit is not the only important variable. A comprehensive financing plan for the future must be developed in order for a small business to succeed.
Having this financial plan allows the management to track actual events against the financial plan and make adjustments as the year passes. This is invaluable to the owner in order to keep the business out of financial trouble in a changing economic environment. If the business firm needs a bank loan or other financing, these pro forma financial statements are usually required.