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FIN 200 Week 3 CheckPoint Financial Forecasting

FIN 200 Week 3 CheckPoint Financial Forecasting - Having a...

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The predominant reasons why companies need financial forecasts is normally when they need to take out business loans or are planning to grow their business. For example, a financial forecast for a new company is necessary so that the company can properly plan its development, purchases, and payments during its first years of existence. By preparing this information the company can properly budget and better understand when it can afford to hire employees or make equipment purchases. Also, bankers will often need a financial forecast from a new company to determine whether that company has any potential to repay any bank loans. A family owned company may need to obtain a financial forecast for several reasons other than just bank lending. Often, private companies are sold to other family members or other investors.
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Unformatted text preview: Having a financial forecast can often help the owners of such companies obtain higher payment for ownership shares in their company or for the entire company itself. A well prepared financial forecast can have this effect because it can provide guidance as to what profits, assets, and liabilities are expected to be in the future. This helps potential investors or buyers evaluate the rate of return on their investment. Finally, an existing company can use a financial forecast to determine whether it can expand or whether it should alter a current business practice. A forecast can help business managers look at future results based on current actions. Because of this it allows them to stop poor decisions before they are made and to make good decisions based on their estimated results....
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