Where many businesses go wrong is by confusing budgeting with forecasting but the two are very different. While a budget is set in stone, a forecast should be changed with the prevailing business environment and business position.
Business forecasting can, therefore, be approached with scepticism because some people view it merely as a 'guesstimate'. However, a good forecast model - one which is regularly updated, ideally on a monthly or quarterly basis depending on the size and growth rate of your business - generates a number of 'what if' scenarios, allowing you to assess how your business might deal with a variety of situations and helping you to plan better for the future.
The key aspects of business forecasting can be broken down into:
The economic market is an ever-changing one and you need to make sure that your business can adjust to the changes. Examining your own business market, as well as the wider market, will enable you to better understand consumer trends and therefore make more accurate sales predictions that will help you prepare your business for external influences.
Sales forecasting allows you to accurately predict the demand of your product or service in the near future. This will allow you to make better-informed managerial decisions, such as increasing stock and staff.
Accurately forecasting your business financials will enable you to see more clearly and analyse how your business is performing. For example, it will allow you to assess if your business is achieving its KPIs.
Cash flow forecasting is essential for any business to survive. There is always the potential that a change in the market or some other uncontrollable variable will throw off sales forecasts and so you need to be prepared. A well-organised cash flow forecast will help you deal with unforeseen circumstances that may lead to additional expenses.
Budget and forecasting
Accurate forecasting will not only give you a clearer idea of cash flow and future performance of your business but it will also enable you to set more realistic budgets. Using the right accounting software will help you create and manage these budgets easily.
If you want help and advice on how to better forecast for your business, contact us at Naylor Accountancy