A financial forecast tries to predict what your business will look like. This is an important part for businesses to focus on. It is essential to keep the business viable and to guarantee its future.
What is Financial Planning ?
Financial planning and forecasting are financial practices that help a business determine operations, create reasonable expectations, and measure actual performance against set goals. It can be used to decide if an idea or a project is viable, to monitor the business performance or to attract investment.
Both financial planning and forecasting are managed on a regular basis to set goals and expectation. It covers the whole of a business’s financial concerns and operations. Some of the concepts involved in financial planning include budgeting, accounting methods, the creation of sales goals, and financial performance analysis.
Why is it important ?
A financial forecast is a crucial part of business, especially to assure its future. It is important to be as accurate as possible. A forecast that over promises and under delivers can lead to problems. You can suffer from withdrawal of finance or launching a business that is not viable. To give yourself a chance of success you can’t be over optimistic with your sales forecast. It should be based on past performance, market and industry research.
You should be able to justify the figures in your forecast to 3rd parties. You must work on your forecast for a worse case scenario. Ask yourself the question : can you survive in that scenario ? As well, for your cost you shouldn’t underestimate and think about possible price increases overtime. From a cash flow point of view, don’t expect all your customers to pay on time, and think about the prospect of bad debts.
Finally, a good forecast is a great tool, but a bad forecast is at best useless, and at worst can cause costly mistakes that can jeopardize your business’ chance of surviving. If you need help with financial forecasting or any other service then please contact us.
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