Have you ever experienced that moment when you realize there isn’t enough cash to meet payroll? Have you ever had a call from your banker to say you’ve exceeded your borrowing limits? Have you looked at your financial statements at the end of the year and the profit is not what you expected?
You cannot predict the future of your business, but you can reduce the risk by eliminating the guesswork. Having a financial forecast will help you to take corrective action to avoid cash flow problems.
All business owners have goals, targets and plans for their business. They just haven’t broken them down to a monthly forecast. Preparing a business forecast that projects the future periods allows you to have your goals in mind every day and measure progress along the way.
There are many benefits from financial forecasting;
- You will identify the financial viability of your future plans, including the launch of a new product or venture.
- You will identify periods where you may experience cash shortages allowing you to take corrective action.
- You can look at different scenarios and see the impact on cash. For example, the impact on your cash position if sales outperform expectations.
- You can carry out breakeven analysis to identify the minimum level of sales you need to make each month to survive.
- A financial forecast can be updated regularly to reflect changing circumstances and help keep you on track to achieve your goals, targets and plans.
- Improved cost control because you will always know what you should be spending.
- By comparing actual results against forecast and analysing the reason behind variances helps you to understand better what is happening in the business.
This is the best time of year to build your budget for 2020, work with your business advisor to build your future today.
The best way to predict your future is to create it. – Peter Drucker