What is one of the primary purposes of a financial forecast?

A financial forecast serves primarily to predict future revenues and guide decision-making, which encompasses budgeting, planning, and strategic investments for a business. By analyzing various factors such as market trends, economic conditions, and historical performance, businesses can estimate their financial performance over a specific period. This foresight is critical as it allows management to make informed decisions regarding resource allocation, operational adjustments, and setting realistic financial goals.

While analyzing past revenue trends and creating a marketing strategy can certainly benefit from financial insights, these activities do not capture the core function of a financial forecast. Lowering employee salaries, while a potential business decision based on financial circumstances, is not a basic purpose of forecasting. The essence of financial forecasting lies in its proactive nature to provide direction and insight for future business endeavors.