April 2022

When discussing budgets or forecasting, many times in my career, I have been met with the response, “That doesn’t mean anything. It’s just crystal ball gazing!”

Whilst anyone can put numbers on a page and call it a budget, financial forecasts are far from a crystal ball.

When prepared with careful consideration, they are a powerful planning tool that provides valuable insight into profitability, financial stability, and future cash flow.

Financial forecasts can also assist business owners to create a business plan.

The importance of financial forecasting Robust financial forecasting helps decision making and facilitates sound financial management. For example, forecasting and budgeting can help you decide when your business is ready to recruit, when to provide training programmes or when to hire contractors.

Similarly, forecasting can improve business outcomes in areas as diverse as managing cash flow, planning marketing, and meeting tax obligations.

Preparing a financial forecast

There are two critical steps to preparing a forecast.

1. Build the foundation of your forecast through a thorough analysis of past and present data.

This involves identifying seasonality, looking at terms of trade (how and when you are paid), and production planning. External factors, like economic conditions and industry outlook, should be taken into consideration as well.

2. Conducting scenario analyses on the base forecast.

This assists to identify unexpected changes in the market, supply chain, or business plan. Common types of scenarios include understanding what would happen if:

• Your sales dropped by ten percent.
• You spent capital on equipment.
• You restructured your debt.

Getting started with financial forecasting

If undertaking a financial forecast seems overwhelming, there are some great software tools available to assist with the process.

These tools help keep you on track and allow you to compare actual performance to the budget, which could highlight areas of the business that may be under performing and require attention.

If prepared, managed and monitored correctly, forecasting can help bring you closer to your goals and dream lifestyle than crystal ball gazing ever will.

And with the new financial year upon us, there’s no better time to discuss how budgeting and forecasting could help your business.

Get started by submitting this form and one of our team will call you back.

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