How often do you base your business decisions only on historical data? Although past figures and facts can provide various business insights, it is not the only benchmark that you should be using – doing so could even limit your future planning and possible gains!
This is where forecasting comes in. Highlighting your future threats and opportunities, this approach can help you shape a proactive strategy for the future of your business. This includes budgeting and your financial strategy too.
Let’s take a closer look at how forecasting and budget planning can benefit your small business.
A mindset shift from past to future
An everyday function such as accounting has for centuries relied on reviewing historic information – however, this only informs past decisions, and doesn’t truly serve as a guide for future budgeting and allocating funds more sustainably.
To achieve success for your business, you need to look beyond past historic numbers. Relying too much on outdated data can limit the insights you gather to plan for future successes for your business. Furthermore, a backwards-looking ideology can hamper your future planning, making budget planning difficult and blurring the trajectory that your business is on.
Forecasting disrupts this process of only considering past data. Following a better data analysis approach and using forecasting tools allows you to project future sales, cash, revenue and profits – and exercise better control of your business and your budget.
A forward-looking view of your business journey
Forecasting switches up the focus of your financial management with a forward-looking view of your business journey. This refreshed approach guides you, as a business owner, to spot future opportunities and avoid common business pitfalls.
How budgeting can help analyse costs that you can cut within your business
Together with forecasting, budgeting can help you cut business costs. These include advertising costs too, as you will be more discerning as to where you are allocating funds to marketing. You will also be able to lower vehicle expenses and save on insurance when you make an active effort to fine-tune your cover together with your broker.
Five benefits of forecasting to take your business – and your budget! – from strength to strength
Forecasting can map out potential successes for businesses – and help them to steer the course through effective planning. Here are five benefits of forecasting to consider:
1. Highlighting data patterns
Forecasting tools take your historic business data and projects it forward in time. The value that this approach adds to your business is that you and your advisers can recognise trends, gaps and opportunities, revealing the true ‘story’ behind your business accounts. For example, forecasting could reveal a possible slump in sales, such as after the festive season in the last quarter of the year, which means you could consider tactics such as special promotions and sales to minimise any possible negative impact.
In terms of budgeting, forecasting can help you plan for profits and losses, as with the above example, which can assist in helping you plan your financial trajectory more carefully and aligned with expected changes in the market.
2. Considering the future of your business
More often than not, business owners will consult historical data to predict future gains and profits. Although there is value in reviewing your historic data, it doesn’t give you the scope you need for future planning. Forecasting helps you to look forward, basing your expectations on what can be achieved and how to get your business there.
3. Helping you to forecast your cash flows
Forecasting allows you to determine your monthly cash flows based on your profit and loss budget as well as future expenses such as salaries, office upgrades and procurement costs. By using forecasting, you can more easily budget for expenses and be prepared for what your cash flow will look like each month.
4. Making informed, evidence-based decisions
Having ‘the full picture’ of combined historic numbers, forecasts and longer-term projections can guide your business decision-making. Forecasting gives you solid evidence to base your business strategy planning on, and helps to flag any possible future threats – generating the best possible information to keep your executive team informed and on track.
5. A more constructive relationship with your accountant
Forecasting guides us to get a far more granular view of our business. This updated approach helps us to spot potential areas of performance improvement, and gives us the best possible strategic advice, all backed up by solid, empirical data and management information.
Forecasting also allows us to budget more efficiently and to work together with our accountants to prepare for any shortfalls or adjustments needed for budgets.
Contact us today to start your forecasting journey
Are you ready to take control of the destiny of your company? Let’s connect today! Forecasting helps you highlight your future threats and opportunities – and we can assist you in creating a proactive strategy to improve the performance of your business and better management of your business budget and finances!