The important task of financial forecasting
Most commercial business owners simply don’t allocate sufficient time for business planning. It’s not a criticism, as many businesses suffer from the same issue – lack of time. However, setting aside a planning day now can ensure your business is managed in a more strategic way, creating in fact more time and more profit. As a commercial business owner myself, I urge you to plan further than the week or month ahead. Financial forecasting for 2015 is a highly valuable exercise for profit enhancement, investment planning and retirement planning. Download our simple Profit and Loss Forecast Template
to help you get started.
Financial forecasting isn’t just guesswork
One reason our commercial clients come up with when I gently challenge them about the preparation of their financial forecast for the coming year, is that financial forecasting is just guesswork and of little use in reality.
This is a misconception as financial forecasting, whilst never 100% accurate, is, in fact, based on trends, “educated” estimations and real time experience. If executed properly, that is.
The help of a qualified accountant is useful for commercial businesses to ensure your financial forecast is accurate and realistic.
Why you should prepare a financial forecast for 2015
If you not already on the case, working with your bookkeeper, your business partner and your accountant on this important task, here are a few reasons why you should take action for a more profitable 2015:
This way you can work towards having a 1-year rolling forecast which is updated every 3 months. At this point your business operations really get to the strategic level.
- Understand in advance if your business is likely to make the required or desired level of profit in the next 12 months
- Factor in seasonal fluctuations that have appeared in previous years and make a plan to smooth them over, or just be prepared for them
- Give structure to comparing actual figures with target figures to continually track performance.
- Be in the position to make better business decisions at the start of the year and throughout the year as actual results come in and can be compared.
- Uncover opportunities from spending structured time working on your business aspirations and goals in line with what is realistic to achieve within a set timeframe.
Starting the process
Information you will need to have to start the process of financial forecasting includes:
Next download our simple Financial Forecasting template to use as a starting point. For more complex forecasts Figurit can help with adapting this template to suit your requirements
- Financial accounts for the last financial year, as approved by your accountant – for example, year ended 31 December 2013.
- Management accounts, for the current financial year – for example, year ended 31 December 2014 (or to date).
- Any graphs, charts or Key Performance Indicator Reports, as produced throughout the year.
The broad steps to financial forecasting
- Assess the historical information to spot trends month on month and year on year – depending on the size of your business and how many years of data you have will depend how much you need to break it down.
- Consider whether you think business in your industry is on the rise, fall or consistent – this can be tricky with unforeseen economic ups and downs. However, you should be able to get an idea from looking at the trend of income for the past 12 months.
- Look for months where activity is low – perhaps August or December show lower income results due to holidays. Consider how you could turn this slump in sales into an opportunity, perhaps by offering a promotion. Or consider cutting costs by perhaps reducing staff for that month by encouraging staff holidays or unpaid leave.
- Make notes to this effect to support your financial forecast so when you look back you know the reasons behind your calculations.
- Plug all of this into the Financial Forecast Template and watch how the profit goes up and down each month as you change income and cost levels!
It gets exciting when you work out what your profit could be with the right criteria. Be realistic though and always get someone to “sanity check” your final figures before you set them in stone.
How this fits into your Business Plan
The financial forecast is just one element of overall Business Planning. If you are keen to continue to grow and develop your business in 2015, you may like to also carry out the following:
For assistance with your financial forecast or to discuss imrpoving your business performance and profit in 2015, contact the commercial team at Figurit. We can help get you started and introduce a sustainable system for tracking results through the year.
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