What is the purpose of a financial forecast?

The purpose of a financial forecast is fundamentally about estimating future financial outcomes based on historical data and assumptions. This process involves analyzing past financial trends, economic conditions, and various assumptions about future performance, to create a roadmap of expected revenues, expenses, and profitability.

By incorporating historical data, a financial forecast uses quantitative analysis to project how these figures might change over time, which is essential for strategic planning. Businesses can leverage this information to prepare for different scenarios, making informed decisions about budgeting, resource allocation, and potential growth opportunities. This predictive nature of forecasting is vital for managing a small business's finances, as it allows owners to anticipate and react to financial needs.

The other options provided, while related to financial management, do not focus on the core purpose of making future estimations based on past data and assumptions. Documenting past performance is important for understanding where the business stands, outlining current expenses and revenues is crucial for immediate planning, and determining investment opportunities relies on forecasting but is not the primary purpose of a financial forecast itself.