To keep a business running, you need to be aware of the information you have about it and its market to define sales strategies, analyze decision-making, and choose the paths to follow, right? All of this is a prediction. Predicting something is nothing more than estimating what will happen based on facts, on history. And those facts or history could be a social influence, a seasonal impact of the market in which it operates, or your company’s financial information.
The Importance Of Financial Forecasting
Ensuring financial forecasts for your venture allows you to make medium or long-term projections, more or less assertive, of something that can become real and directly impact your venture. These projections help you understand not only the direction of your business and the market in which it operates but also the steps you can or cannot take according to your company’s financial health today and what you expect from it tomorrow and beyond.
When performing financial forecasts, the more information you have – and the more organized it is – the closer you will be to a realistic future scenario for your company. And that way, you direct efforts toward goals; for example, you can understand which periods depend on more or less risky actions, coordinate safer movements concerning your cash, avoid unpleasant surprises, and manage to analyze risks.
How To Have A Financial Forecast?
Keep your cash flow organized with financial forecasting consultant. It seems very obvious, but managing your company’s cash flow correctly will guarantee you the main support tool to understand your business, make forecasts more accurately, and know when and why to take risks. With an updated and accurate cash flow, it is possible to identify all your cash inflows and outflows, opening and ending balances for specific periods, and understand sales and receipts and expenses and costs.
With this information, you will be able to answer important questions to understand, for example, if it is possible to make some investment without compromising any area of your enterprise, what are your operating costs in case of a possible expansion of the business, if to carry out any action important will need a loan, among other important actions that can compromise your financial health if you are not well informed.
Not to make a mistake:
When performing a financial forecast with Cultivate Advisors for example, you must know some important information. Before you start thinking about possible scenarios:
1) Analyze your financial history and the market
Have concrete and reliable data about your company and the results of the actions carried out over the years. This is important to understand your cash movements according to the periods of the year, for example. And compare this information with the market in which it operates. Realize seasonality that increases or decreases the consumption of your product or service, and understand the markets that offer raw materials for your business and their variations, among other information that will help you to perceive usual changes.
2) Do not forget to detail your fixed and variable movements In addition to your Initial Balance, raise the exit information in your cashier. Consider wages, pro-labore, bills for your physical space (rent, water, electricity), and other outputs that occur fixedly, regardless of billing.
But don’t forget to factor in variable expenses! Although less precisely, you should consider the cost of production if you carry out a sales action, delivery fees if you decide to expand, sales commissions, etc. Don’t forget to consider taxes on fixed or variable costs here.
3) Compare scenarios
When making predictions, to be more sure of the actions you intend to take, do not forget to compare periods. Take data collected in the same months of the years that passed and compare, understand which actions were effective or not, and understand the reasons for not repeating the mistakes.
By following these tips and making your financial forecasts, you can have a little more precision in decision-making, in your business development plans, and control over the financial impacts that internal and external changes can cause.