For every business which is serious about growth, financial forecasting is a must. From a sole trader to the biggest multi-national, financial forecasting can be used to analyse current performance and help you gain a realistic view of where your business can be in one, two or five years time.
There are three types of forecast available, Budget Forecasting, Cash Flow Forecasting and Balance Sheet Forecasting, these are explained in detail below:
A budget forecast sets out a financial framework within which to manage your business in future years.
Having insight into how much money is coming in and going out of your business every week, month or year is crucial to financial efficiency and improving your bottom line.
Using your management accounting information, we can forecast your cash flow by looking at how much is owed to you and how much you need to pay to creditors. It could be that there is a hole in your cash in a few months, giving you the time to get a loan in place.
Alternately you may have a surplus of cash allowing you to plan your next investment.
The balance sheet forecast goes hand-in-hand with the profit & loss and cash flow.
It is an essential part of the forecast as it is the checking mechanism to make sure the accounts balance when forecasting into the future and provides a sense check on the numbers that have been forecasted.
Here are some of the reasons your business should make financial forecasting a part of your accounting processes.
Zero-in on Profit
Reveal Key Performance Indicators in profitability. Spot which services or products you supply are returning the biggest profit for the smallest outlay.
Reduce Unneeded Spend
With a Cash Flow Forecast, you can spot areas of wasted spend and improve your bottom line.
Anticipate and Plan
By looking at past business performance, you can identify reoccurring spikes of increased profitability and cost. Using this information, you can plan ahead for seasonal trends in supply and demand.
Most growing businesses will hit a point where they need major cash inflow to get the the next stage of growth. This could be for larger premises, new technology, machinery, vehicles or specialist staff. One of the first things prospective investors or lenders will want to see is your projected profit and loss, cash flow and balance sheet for the next 1-5 years.
Direct Peak can put together all three types of financial forecasts (Budget, Cash Flow and Balance Sheet) and assist you in sourcing funding from banks or other investors.
Katherine Duff, Director
Keeping HR Simple
Forecasting finances for your business can help you make projections for future business decisions, lending and investment.
Call us now on 01778 481044 to discuss your requirements or book a call with us via the opposite form and we will call you at a convenient time.
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