![](\"https:\/\/s3.amazonaws.com\/snd-store\/a\/73096452\/05_13_22_1161949872_aab_560x292.jpg\")
<\/p>\n<\/p>\n
Financial statements look at historical performance. But there are times when you want forward-looking reports to help your business make strategic investment decisions, evaluate the viability of a turnaround plan or apply for a loan. Your accountant can help ensure the assumptions underlying prospective financial statements make sense in today\u2019s volatile marketplace.<\/p>\n
Key definitions<\/strong><\/p>\n When creating forward-looking financials, you generally have two options under AICPA Attestation Standards Section\u00a0301, Financial Forecasts and Projections<\/em>:<\/p>\n 1. Forecast.<\/strong> Prospective financial statements that present, to the best of the responsible party\u2019s knowledge and belief, an entity\u2019s expected financial position, results of operations and cash flows. A financial forecast is based on the responsible party\u2019s assumptions reflecting the conditions it expects to exist and the course of action it expects to\u00a0take.<\/p>\n 2. Projection.<\/strong> Prospective financial statements that present, to the best of the responsible party\u2019s knowledge and belief, given one or more hypothetical assumptions, an entity\u2019s expected financial position, results of operations and cash flows. A financial projection is sometimes prepared to present one or more hypothetical courses of action for evaluation, as in response to a question such as, \u201cWhat would happen if\u00a0\u2026\u00a0?\u201d<\/p>\n Subtle difference<\/strong><\/p>\n The terms \u201cforecast\u201d and \u201cprojection\u201d are sometimes used interchangeably. But there\u2019s a noteworthy distinction, a forecast represents expected results based on the expected<\/em> course of action. These are the most common type of prospective reports for companies with steady historical performance that plan to maintain the status\u00a0quo.<\/p>\n On the flip side, a projection estimates the company\u2019s expected results based on various hypothetical<\/em> situations that may or may not occur. These statements are typically used when management is uncertain whether performance targets will be met. So, they may be appropriate for start-ups or when evaluating results over a longer period because there\u2019s a good chance that customer demand or market conditions could change over\u00a0time.<\/p>\n Critical components<\/strong><\/p>\n Regardless of whether you opt for a forecast or projection, the report will generally be organized using the same format as your financial statements with an income statement, balance sheet and cash flow statement. Most prospective statements conclude with a statement of key assumptions that underlie the numbers. Many assumptions are driven by your company\u2019s historical financial statements, along with a detailed sales budget for the\u00a0year.<\/p>\n Instead of relying on static forecasts or projections \u2014 which can quickly become outdated in a volatile marketplace \u2014 some companies now use rolling 12-month versions that are adaptable and look beyond year end. This helps you identify and respond to weaknesses in your assumptions, as well as unexpected changes in the marketplace. For example, a manufacturer that experiences a shortage of raw materials could experience an unexpected drop in sales until conditions improve. If the company maintains a rolling forecast, it would be able to revise its plans for such a temporary disruption.<\/p>\n Contact us<\/strong><\/p>\n Planning for the future is an important part of running a successful business. While no forecast or projection will be 100% accurate in these uncertain times, we can help you evaluate the alternatives for issuing prospective financial statements and offer fresh, objective insights about what may lie ahead for your business.<\/p>\n \u00a9 2022<\/em><\/p>\n <\/body> Financial statements look at historical performance. But there are times when you want forward-looking reports to help your business make strategic investment decisions, evaluate the viability of a turnaround plan or apply for a loan. Your accountant can help ensure the assumptions underlying prospective financial statements make sense in today\u2019s volatile marketplace. Key definitions When […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13,7,10],"tags":[8,11,12],"class_list":["post-15994","post","type-post","status-publish","format-standard","hentry","category-aa","category-articles","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15994","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=15994"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15994\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=15994"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=15994"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=15994"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n<\/html><\/p>\n","protected":false},"excerpt":{"rendered":"