Sound finances are the basis of every healthy business. You can have innovative ideas, creative personnel and a potential customer base of millions but if your revenue, capital and cash flow are not secure, the future is anything but assured. Getting on top of your numbers gives you the clarity to assess your current performance. Only then can you properly address the plans and challenges of the coming year.
Financial forecasting is more than an accounting exercise. It is a means of identifying trends of all kinds, from customer behaviour to changes in the supply chain, from the availability of key skills to the fluctuation of costs. By analysing external and internal data in all these areas you can predict with reasonable accuracy the likely financial status of your business during the coming economic cycle.
There are three crucial statements needed in understanding your financial position: Profit and Loss, Balance Sheet and Cash Flow. They give you vital insights into recent past performance and enable you to plan feasible improvements with two related but distinct projections, your budget and your forecast.
It is customary to produce a budget once a year, identifying your new targets and how to hit them, while forecasts are usually updated every month, and provide a measure of how the progress of your business is proceeding to meet those targets at any point in the year.
These forecasts make it much easier to make the right decisions at the right time. A divergence between budget and forecast is a warning sign that something needs to change quickly. The more intelligence you have about your current financial position, the more effectively you can steer the ship. You can learn from the past while looking ahead to pre-empt market changes and the emergence of competitive challenges.
Forecasting means you will also be better prepared to anticipate changing financial needs, giving you the time to pursue increased capital investment through private equity or loans. In fact, the forecasts themselves may be decisive in being able to secure these sources of funding.
Being prepared for varying eventualities is one of the secrets of success. If a drop in sales takes you by surprise it is much harder to respond than if you had previously modelled such a development. No one can see the future, but we can certainly predict possibilities.
Neon Accounting has the expertise to help you generate financial forecasts that will help you maximise potential, mitigate setbacks and achieve your objectives in the year ahead. Please explore our site or contact us to find out more.