Financial planning is crucial for the success of any business.

In today’s article, we will be covering the benefits of Financial forecasting for your business.

What is Financial forecasting

Financial forecasting is a method of planning the financial future of a business. It works by creating financial projections of the business into the future.

Does my business need to do a financial forecast?

If you want to scale your business successfully, you will want to have a financial forecast in place.

The role of effective financial forecasting should not be underestimated – think of it as a roadmap to your business goals.

Benefits of Financial forecasting

Strategic planning

A forecast gives a base for informing the financial strategy of a business.

Financial forecasting helps businesses in the process of strategic planning.

They help businesses plan by predicting future income, expenses and cashflow. The forecast helps identify the resources required to achieve business goals, review available resources and fill in the gaps where necessary to avoid costly surprises.

They help with the budgeting.

Having worked out what is expected in terms of income and expenses over a period of time, decisions can be made easily on spending limits and allocation of resources.

Risk Management

A financial forecast helps anticipate issues before they occur which allows the business to plan ahead and mitigate these risks as much as possible.

Helps with decision making

Forecasting helps business stakeholders make informed decisions about the operation and growth of the business. Decisions on growth and expansion, cost control and investment as well as any required funding.

Performance measurement

A forecast is a tool to measure the performance of a business. Regular performance measurement allows the business to monitor growth against targets and make necessary changes accordingly. (Before it is too late)

Resource allocation

A financial forecast will inform how resources are allocated within a business. It is a basis to ensure efficient resource allocation. For example, if a business has forecast a 20% increase in sales, this could mean an increase in resource allocation to marketing and staff costs. These costs are expected to be higher therefore it is not a surprise.

Roadmap to achieve goals

A forecast provides a roadmap to help businesses achieve their goals. For example, a business may want to grow its sales by 30%, consideration must be given to what needs to happen to make this a reality – a financial forecast helps provide that road map.

Determine affordability

Helps business determine affordability of different activities or growth plans. This helps ensure that growth plans are sustainable.

Maximise growth opportunities

A good forecast helps business determine what is possible and because creating a forecast involves analysing the market trends and other factors, business will be well informed of current opportunities in the market which they can maximise to grow.

Care must be taken to ensure that the financial forecast is realistic and has been based on reliable, data, is reviewed regularly and updated accordingly.

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