Question

1. Is forecasting more important for small firms or large firms? Why?

Answer 1

Answer - There are no of reasons which shows that forecasting is very important for both small and big firms. Following are the mentioned reason for forecasting

FOR SMALL FIRMS-

1. To ensure that business will remain in going concern - In today's competitive era, it is very difficult for small firms to retain themselves in such competitive market. The reason behind is that intense competition from large firms, high entry barriers or high exit cost. So in this case it very important for small business firms to do forecasting of their business.
2. To ensure that business will generate enough profits in long term- Generally in the initial period it is difficult for small firms to earn normal profits due to high investment. But to ensure that business will generate enough profits, so that they can remain in competitive market. There are various techniques and expertise available to do forecasting.
3. To ensure that business will generate wealth for shareholders- Shareholders are the person who put their money in businesses. They think that if business is going to remain competitive, they will generate enough profits out of their investments. So to add value to shareholder's wealth , forecasting is very important .
4. To avoid unnecessary cost- Forecasting plays a very important role in cutting wasteful expenses. If there are more wasteful expenses in the business, it would eat up their profit margin and there are more chances of shutdown of business.

FOR LARGE FIRMS

1. To take first mover advantage- The large companies is already in maturity stage. That means it can not earn super normal profits. So to keep in competitive market or to have competitive edge it is very important to take first mover advantage. Forecasting plays a very important role in this field.
2. To do diversification- Large companies do diversification. Diversification means going into new ventures or setting up of new ventures which is unrelated to your business. It involves huge cost. So to avoid shutdown of new venture, the forecasting has been done by experience people who have expertise in this field.
3. To generate normal profits. Generally for large firms it is very hard to generate normal profits as well due to entrance of new competition which would eat up their profit margins. So it is very important at this stage to do forecasting so that they can generate normal profits.