Financial forecasting for your business is a very powerful tool to project revenue, anticipate and mitigate risk, allocate resources effectively and unleash business potential, but how do you ensure that it passes the reality test – in other words is fit for purpose?

Here are some tips

Be realistic on your targets – ensure that you set achievable targets.

It is great to dream but if targets are not realistic, the whole process of forecasting is wasted and lead to a demoralised and stressed team. Instead to setting a forecast in “concrete” test different scenarios, best case, middle case and worst-case scenario.

Before you start, make sure you have accurate data because if you base your forecasts on inadequate or inaccurate data, it is not going to achieve the purpose that you set it up for. As the saying goes, rubbish in and rubbish out. Invest in robust record keeping systems for your bookkeeping and ensure that your team in this area has adequately been trained.

Don’t underestimate expenditure.

Thoroughly analyse all expenses allowing for inflationary increases.

Consider and allow for external factors.

We cannot predict the future, but building a forecast without allowing for external factors is very risky business.

Consider market trends, analyse your competitors, political environment Social; Technological; Environmental; Legal factors and review these regularly.

Regularly review assumptions and update accordingly.

Nothing stands still in the world of business, make sure that you are staying ahead of the curb.

Invest in training

Invest in your team’s training or get a professional on board to ensure that the forecast produces value.

Monitor & update the forecast

Monitor the forecast at the very least quarterly. My recommendation would be to monitor monthly but quarterly might work for some businesses.

With no monitoring, it is a case of out sight out of mind which defeats the purpose of having a forecast.

Communication

Foster clear communication to ensure that all stakeholders on the same page, expectations are clear and out comes are in line with everyone’s understanding.

If you need help with your business Financial strategy, book a call to speak to us.