What is Financial Forecasting?
Have you ever experienced that moment when you realise there isn’t enough cash to meet the wages bill at the end of the month?
You’ve had that unexpected phone call from your bank manager to say you’ve exceeded your borrowing limits?
You have looked at your year-end financial statements & been surprised; the profit for the year was nothing like you expected?
Such moments can have dire consequences on cash flow & the viability of your business.
What you may not realise is these problems often arise when sales growth going as planned.
For example, you could double sales in 12-months, but if you don’t have robust Credit Control systems, most especially if your terms more relaxed than time you get to pay your suppliers, this can lead to major cash shortages; and sometimes going out of business.
If only you had a crystal ball to look into the future, you could take corrective action to avoid those problems. That’s what a comprehensive financial forecast will do for your business. In fact, it will do much more…
Getting the focus back
You have goals, targets, and plans for your business. But have you broken that down to a monthly plan and forecast?
Do you know the impact your sales targets will have on your cash position?
Do you know what additional resources you will need to support your sales plans?
How will that impact on cash? Will you need additional finance?
It can be tough to figure out why the profits are not what you expected them to be, or why some costs are so much higher than you thought they would be.
So, what do we do?
We prepare a business forecast that projects ahead across future periods, so you have your goals clearly in mind every day and measure progress along the way.
How Do You Benefit From Financial Forecasting?
– You will identify the financial viability of your future plans, including the launch of a new product or venture.
– You will identify periods when you could experience cash shortages allowing you to take corrective action.
– You can look at different scenarios & see the impact on cash. For example, the impact on your cash position if sales outperform or underperform on expectations.
– You can carry out breakeven analysis to identify the minimum level of sales you need to make each month to survive.
– Your financial forecast can be updated regularly to reflect changing circumstances, to help you keep you on track to achieve your goals, targets, and plans.
– Improved cost control because you will always know what you should be spending.
– By comparing actual results against forecast and analysing the reason behind variances helps you to understand better what is happening in the business.
– If you’re looking to secure funding for your business, up to date financial forecasts will help you get the money you need (in fact, often a lender will insist on this).
Conclusion
You could get a lot of help and benefits looking forward and planning ahead, after all the saying is: If you don’t plan, you’re planning to fail.
If you find this interesting or helpful, why not book a meeting to see how we can help you?
