financial forecast

Mama Ngozi sells rice and beans by the bag in Mile 12 market, and every December she does the same calm ritual with her exercise book. She counts how much she sold in the last twelve months, notes that January and December always sell more because of parties and Christmas, and then writes a number for what she expects to make next year. She is not doing magic. She is doing a financial forecast, the same thing that big companies pay analysts to do in fancier spreadsheets.

A financial forecast is simply a business's best estimate of what its income, costs and profit will look like over a future period, usually the next month, quarter or year. It is built from real history, current trends and reasonable assumptions, not wishful thinking. A company that grew sales by 10 percent every year for the last three years might forecast a similar growth next year, unless something has changed, like a new competitor or a fuel price increase that will push up transport costs.

In Nigeria, a bank preparing its yearly forecast will look at expected interest income from loans, likely charges from the Central Bank, and how much naira might lose value against the dollar, since that affects the cost of anything imported. In the United Kingdom, a small Nigerian owned catering business preparing its forecast for the year will factor in more bookings around Christmas and summer weddings, and quieter months in between.

For someone in London sending money home every month, a personal version of this exists too. If you know your December transfer to your mother in Enugu always doubles because of school fees and Christmas expenses, you are forecasting, even if you never call it that.

Forecasts are never perfect, and nobody expects them to be. What matters is that the assumptions behind them are reasonable and clearly stated, so that when reality differs, the business can see exactly why and adjust quickly.