A crystal ball would be handy in business. Likewise, forecasting (based on essential tools and techniques) can provide you with an informed view of the future of your business and finances.
One way to help improve your business decision-making is to produce regular management information. But looking at historical numbers can only tell you so much, and in business, you want to know what the future holds.
To make truly informed decisions about your future strategy, you need to use forecasting tools to project your data forwards in time.
By running projections based on these historical numbers, and producing detailed forecasts, you can get the clearest possible view of the road ahead – which could prove invaluable
Run regular cashflow forecasts
Positive cashflow is vital to the short, medium and long-term success of your business. Without cash, you simply can’t operate efficiently. Running regular cashflow forecasts helps you overcome this challenge by enabling you to spot the cash gaps that lie further down the road, and take action to fill these holes.
Income can often be unpredictable, especially in challenging economic times. If customers fail to pay an invoice or suppliers increase their prices, this can all start to eat into your available cash. Using forecasting, you can extrapolate your numbers forward to which weeks, months or quarters might be looking financially tight. And, with enough prior warning, there should be adequate time to look for short-term funding facilities or to get proactive with reducing your spending.
Run sales and revenue forecasts
A consistently profitable business is one of the key foundations of a successful business. If you’re going to generate enough capital to fund your growth plans, you want your sales to be stable and your revenues predictable. And you need to know how those revenues will pan out over the coming financial period.
Revenue forecasts work much like a cashflow forecast. Instead of looking at your future cash position, they project your sales and how much revenue is likely to be brought into the business in the coming weeks and months. With better revenue information, you’ll be more on top of your profit targets, which means (a) you can manage your working capital in a more practical way; and (b) you can improve your ability to invest in new projects, additional staff or funding of the long-term expansion of your business.
Run different scenario plans
No-one can predict exactly what’s in store for your business down the path. But, by considering different scenarios, you can run projections to see what the potential outcomes and impacts may be.
These ‘what-if scenarios’ can be exceptionally useful tools when thinking about big business decisions. “What if there’s an economic recession?” “What if our sales increased by 25%?” “What if we raised our prices by 10% next quarter?” “What if we lost a quarter of our customers?” By plugging the relevant data into your forecasting engine, you can run these hypotheticals and see how each option pans out. That’s massively advantageous if the worst (or the best) happens.
Update your strategy, based on your forecasts
By making the most of your forecasting tools, you give your board, your finance team, and your advisers the most insightful data and projections to work with.
A viable business plan should be designed to flex and evolve to meet the needs of the changing market – and the changing needs of your own business strategy. By using your cashflow forecasts, revenue projections and what-if scenario planning, you give yourself the insights needed to update your strategy and business plan. You can make solid, well-informed decisions and keep yourself one step ahead of your competitors. In the dog-eat-dog business world, that’s a competitive edge that can make a huge difference.
The Pathfinder Solutions team would welcome the chance to chat with you about how forecasting could be of benefit to you and your business. We can explain how technology works alongside strategic thinking, and the value delivered through well-executed forecasting and longer-term projections.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.
