A good financial forecast is likely to get you that funding you’ve been dreaming of. A quality financial forecast can protect you from financial risks!
As helpful as it is, it’s not easy to create financial forecasts. Why?
Entrepreneurs often find themselves drowning in numbers and historical data—unsure of what to include and what to shred. In other words, the process is time-consuming and research extensive.
Scared already? Don’t be.
Fortunately, there’s an easier way: ChatGPT!
It lets you plan and forecast finances based on your historical data, industry averages, and business information using its natural language processing abilities.
What do you do? Just provide insightful information in the prompt to get quality forecasts. Don't worry if you don't know how. Here‘s the guide on using ChatGPT to create financial forecasts with prompts and examples.
Why use ChatGPT for financial forecasting?
Using ChatGPT for financial forecasting offers several compelling advantages like:
- Analyzes vast amounts of data
- Provides insights and projections
- Supports advanced data analysis
- Identifies patterns and trends in historical data
- Avails scenario analysis
- Provides better visualization and structure of your forecasts
Apart from all these, ChatGPT can also get you past the "where to start from" question. As it will provide you with the initial financial numbers and a proper structure.
Furthermore, ChatGPT's versatility allows it to be used across various financial forecasting tasks, from revenue projections to cost analysis.
While it may not be as specialized as predictive analytics tools, ChatGPT can still provide valuable insights that can improve the overall accuracy and depth of financial forecasts.
How to create financial forecasts using ChatGPT?
Creating financial forecasts using ChatGPT can revolutionize your financial planning process. Let’s see how to actually use ChatGPT for some of the financial statements:
1. Build sales forecast using ChatGPT
You can build your sales forecast using ChatGPT for both existing and new businesses. Let's see how:
Recognize the revenue streams
If you have sales data for the existing business, you can input the historical sales data to ChatGPT and get sales forecasting statements.
But if you don't have data and want the sales forecasts, you need to break it down into various parts like:
- The target market
- Channels you are going to sell through
- Pricing point of your product or services
- Industry trends
This will give you the overall structure of how your sales forecasts will look and what your revenue streams will be. The prompt example:
Things to keep in mind while creating sales forecasts
While ChatGPT is efficient enough, you first need to train it by providing proper inputs. The necessary information you should not miss out are:
- Quality check of historical data before being dependent on it
- Specify the time period of forecast (a quarter, a year, or 3-5 years)
- Identify trends and patterns or any seasonal shift in the business
- Consider market conditions and other external factors
- Number of customers you are expecting per month and your target market
Get actual numbers
Once you know the sales revenue and have provided all the relevant information to ChatGPT, you are ready for the actual forecast number. Ask ChatGPT to create the forecasts now like this:
Prompt example: Based on all the above information, create 12 months forecasts now
Response:
This can be helpful, but as ChatGPT suggests, you need to adjust the numbers based on your own research.
To find numbers that work for your business, you should estimate how many customers you might have each month and do some market research on your own. ChatGPT can guide your thinking, but it can't give you the exact numbers.
So, the more detailed information you provide about your business to ChatGPT, the better the results you will receive.
2. Predict the cost of sales using ChatGPT
By using ChatGPT you can create a cost of sales forecast let's see how:
Recognize all your cost components
If your business is existing, then you will have historical cost data. So, first run a quality check, understand the trends, and note any seasonal changes. Prompt example:
For a new business without any cost data, you need to break down your costs into smaller parts such as:
- COGS (cost of goods sold)
- Operational costs
- Marketing and sales costs
- Average cost data of the industry
This breakdown will provide the overall structure of your cost forecasts and help you understand your cost components better.
Things to keep in mind while creating cost of sales forecasts
Some of the things to keep in mind before providing any input to the ChatGPT for the cost of sales forecasts are:
- Detailed input data (invoices, purchase orders, etc)
- Seasonal and cyclical changes
- Potential cost increase
- Forecast timeline (1 year, 3 years, or more)
Get actual numbers
Only you know all the costs of your business and how you plan to do marketing of your business. So, once you know the basic cost of sales components, get ready for all the forecasts.
You can enter a prompt like:
Prompt example: Can you help me predict the cost of sales for the next year?
Response:
3. Build your expense budget using ChatGPT
By utilizing ChatGPT, you can efficiently create an expense budget. Here’s how to get started:
Identify all the costs first
Start by gathering all historical expense data for businesses with existing financial records. Conduct a quality check to recognize any seasonal patterns.
Here you need to be careful in differentiating between assets and expenses because ChatGPT often misunderstands both.
For example: imagine your cafe plans to purchase a high-end espresso machine that costs $8,000. This should be categorized as an asset in your business plan, not as an expense. It is necessary, especially if you're applying for a bank loan because lenders look closely at how you manage your expenditures.
Let’s move forward with a prompt example:
For businesses without any historical data, break down your expenses into the following categories:
- Fixed costs
- Variable costs
- Operational costs
- Marketing and sales costs
- Industry benchmarks
This will give you a breakdown of all the expenses and help you build a proper structure.
Generate Accurate Numbers
Once you've identified all the expense components, input this information into ChatGPT. The more detailed and accurate your data, the better the budget forecast you'll receive.
You can get the proper expense budget with the below prompt example :
Prompt example: Can you help me create a comprehensive budget for the next 5 years that includes costs such as ingredient procurement, marketing, and operational expenses for the same business?
Response:
4. Build personnel forecast using ChatGPT
A company is all about its employees, so the personnel forecast is all about who you will hire, when you will hire, and what will be their salaries.
ChatGPT can assist you by providing the list of key roles you might need in your business. Though ChatGPT can not give you specific positions or the exact timing of hires, it sure does provide the idea.
Below is the prompt and response example you might get from ChatGPT:
Prompt example: Can you help me build a personnel forecast for the next year, considering factors like current staffing levels, turnover rates, seasonal demand, and any planned expansions or contractions in staff? Also, consider all the past salaries that I attached with this request.
Response:
ChatGPT limitations for financial forecasting
While ChatGPT helps structure financial forecasts, it is necessary to recognize its limitations. It can not understand qualitative attributes like consumer behavior and more and understands only things
Let’s see why ChatGPT is not always recommended:
1. No predictive algorithms
ChatGPT mostly relies on pattern recognition from past data. It can’t use predictive analytics or advanced machine learning techniques like any other financial forecasting or business planning tool.
2. Limited understanding of complex financial model
ChatGPT struggles with complex financial concepts and advanced financial modeling. It only provides general insights based on the input data but may not fully process external financial details. Plus the output depends on the data you give to ChatGPT.
3. Historical data limitation
The accuracy of forecasts generated by ChatGPT heavily depends on the quality of the historical data. Inaccurate or incomplete data can lead to unreliable predictions, as the model can't understand the gaps and errors in the data provided.
4. Lack of industry-specific knowledge
While ChatGPT can analyze and generate insights based on past data, it lacks the specialized knowledge, experience, and expertise that a professional financial analyst or consultant might have.
5. Limited customization
Customizing financial forecasts to specific business needs and scenarios can be challenging with ChatGPT. The AI provides general insights and recommendations, but it may not offer tailored solutions without extensive input and guidance.
6. Qualitative and quantitative
ChatGPT can handle both qualitative and quantitative data, but it might struggle to combine them smoothly into the desired output. Financial forecasting often needs a detailed understanding of how factors like market sentiment (qualitative) affect numbers like sales figures (quantitative).
Why consider AI-powered forecasting tools instead
Take your financial forecasting one step ahead with AI-powered forecasting tools. It offers increased accuracy through advanced algorithms and machine learning, providing more reliable forecasts.
They integrate real-time data, ensuring predictions are always current. By identifying trends and patterns, AI delivers predictive capabilities that manual methods might miss.
These tools handle large volumes of complex data and offer customization for specific business needs, making forecasts more relevant.
Furthermore, AI tools continuously learn from new data, enhancing their accuracy and reliability over time, leading to better business insights and outcomes.
The bottom line
To sum up, ChatGPT is a valuable tool to process financial forecasts for your business plan. It provides you with insights that also help you in decision-making.
But we can't ignore limitations too. Being a language model, it is not as accurate and efficient. So, you can't rely on it 100% for your forecasts.
That’s it! Happy planning and forecasting for your business.
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Frequently Asked Questions
How accurate is ChatGPT in financial forecasting?
The accuracy of financial forecasting is generally low due to its lack of real-time data, absence of advanced predictive models, and reliance on historical data. It is best used for general insights and explanations rather than precise financial predictions.
Can ChatGPT handle forecasting for any type of business?
Well, ChatGPT is not well-suited for accurate forecasting for any type of business due to its limitations. It can only provide general insights, explanations, and forecasts.
What kind of data do I need to provide ChatGPT for a financial forecast?
The data needed to get a contextual relevant response from ChatGPT are:
- Historical financial data
- Market trends and data
- Business metrics
- Operational data