Use Accurate Financial Forecasting to Grow Your Business
For many businesses, forecasting is just a stretch too far on your limited resources. But if you are struggling to get your business to the next level, and if your finances are just too patchy to ever give you the confidence to make that jump then, ironically, forecasting is the very tool you need.
What should I be forecasting?
Seasonal changes can affect your overheads and expenses throughout the year, so getting a good understanding of what they are can help you plan. Do you have busy times when you might need to hire more staff or seasons where your expenses rocket?
Analysing your sales for the same time the year before (and the year before that) taking into account the current economic climate and other mitigating factors should give you an accurate picture of the staff and stock you will need for the year ahead. Being able to plan for this can make it more cost effective, saving you money.
Along with sales you will also need to be keeping an eye on your client list. Are you retaining clients, are making the most of upselling opportunities, is your client list growing? If the answers to any or all these questions is no, then this will affect your growth and knowing that empowers you to take action.
Profit and Loss
So, you’ve got your costs under control and you’re getting a good handle of your sales highs and lows throughout the year. This means you’re well positioned to predict your tax liability for the year, and ensure you set aside sufficient funds to cover it. Now you can start to look more clearly at what will be left over, to reinvest into the business and plan for growth.
All of which brings us to cashflow. All the information you’ve been forecasting so far, your sales, costs and profits etc. will also be revealing the pattern of your business’s lifeline, its cashflow. Identifying your lean months gives you the knowledge you need to plan for them. Invoicing in instalments or charging up front fees might be one way you can cover the drier months.
And you know how nobody lends you money when you really need it? A cash flow forecast lets you predict the peaks and troughs and gives you the opportunity to capitalise on a strong bank balance to put facilities in place to fund you through a lean patch or finance growth plans. And of course, it’s really helpful for lenders to be able to see that you know what you’re doing.
Accurate forecasting of these areas is vital to understanding your business and being able to take advantage of the right time to grow. And the good news is that there are tools available to help you do it, so it doesn’t have be as much of a drain on resources as you might have feared. Indeed, from next year, thanks to Making Tax Digital, all businesses will have to use cloud accounting software to file their taxes and the same software, such as Xero, can assist you with much of the forecasting outlined above. Your accountant can aid you with this, through reports, graphs and analysis that can offer you a picture of your various options.
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