Forecasting predicts future business trends by looking at past and current activity. This allows business owners to understand where their business is heading and how they can adapt to any positive or negative changes. Cash flow forecasting looks specifically at the money coming in and out of the business, allowing business owners to predict surpluses and shortages in cash over the period. Recording this information is extremely useful for major business purchases, tax purposes or when applying for loans. Without implementing regular forecasting techniques, it can be difficult to not only grow your business but also avoid any potential issues down the track.
Smart financial forecasting for your businessSo how can you start implementing smart financial forecasting techniques within your business? Before you can even think about starting your forecast, it is important to step back and look at your goals for the next period. Do you want to be increasing your income by a certain amount or investing in new machinery? Do you want to make some new hires or cut back on your hours? Once you have a vision of your goals, you’ll then be able to have a clear perspective on how your forecast affects future decision making.
Preparing your documentation is the best way to make your forecast as seamless as possible. You can start collecting information around fixed costs (consistent costs e.g. wages and insurance) as well as variable costs (costs that change e.g. material costs and utility bills) and income history. By collecting as much information as possible showing past and current trends, your accountant will be able to help you achieve a successful forecast.
Forecasting tools and advice
Does your business currently use forecasting to achieve your financial goals?