As a business owner, understanding where you are headed and having a clear sense of your financial goals is a key to success. In the midst of uncertainty and corporate growth, it is difficult to forecast with a clear sense of confidence and specificity, but doing so is critical. This blog post will detail ways in which you can simplify your financial forecasting to help grow your business.
Understanding all the moving parts
Budgets, plans and forecasts may all be related, but they are, in fact, distinct. Understanding the differences can help ensure that you are tracking the right things at the right time. A budget represents how you want to deploy your resources in order to realize your goals or achieve your plan. A plan is what you actually want to achieve within a given timeframe. A forecast is what the company is actually most likely to achieve based on the most realistic scenario. This blog post focuses on the forecast.
Use the right tools
While forecasting is somewhat speculative, using the right tools will help to ensure that you are applying a method to the madness. A spreadsheet filled with the right formulas and variables will help you to build a history of sales and expenses. If your business is too sophisticated and complex to be managed using spreadsheets, you should consider a more robust accounting tool, such as Quickbooks. Regardless of the tool you choose, you want to make sure that you are building a forward-focused budget that anticipates growth over a period of time.
You should also keep in mind that while automated charts and graphs are critical tools, there is almost always a deeper layer of explanation to your forecasting. A complete forecast will include a textual discussion of your projections.
Use graphics
The numbers and fields represented in a spreadsheet or a more sophisticated tool like Quickbooks, do not always provide an easy-to-consume picture of your projections. Graphical representations of your ‘story’ will help to identify trends and opportunities. Subtle ebbs and flows in sales, over the course of a longer period of time, may be more apparent when they are represented graphically. With this in mind, make sure that the tools you choose have the capabilities to articulate your data using graphs and charts.
Identify the most impactful variables
You want to make sure that you spend your time, energy and attention analyzing the factors that have the most impact. Assumptions that don’t move the needle aren’t worth too much consideration when it comes to forecasting. Use your forecast model to identify the small handful of levers that have the greatest impact on growth, margins and cash and manipulate those to get a realistic picture of what is in store.
Forecast on an ongoing basis
Leaving your forecasting process to the end of a quarter or the end of a fiscal year overlooks the possibility of that one contract that will radically change your budget. Forecasting should be a fluid and ongoing activity that adjusts to the realities of your business. If performance exceeds expectations, you should be able to deploy your resources accordingly. Similarly, if you have a bad month, you should be able to slow your activities.
While forecasting is not a crystal ball, nor a science, there are certain best practices that you can undertake to ensure that you are on track for solid and steady business growth over time.
To learn more about how you can grow your business, contact Miller Bernstein today.
