As business owners, we would all like a crystal ball into the future so we could make sound decisions for future strategies, now. In the real world though, the next best thing to help inform and improve your business decision-making is by producing regular management information reports. Historical data can only say so much though, so to make the best decisions about your future strategy, it’s important to use forecasting tools too. By running projections based on historical data and producing detailed forecasts using the tools available to you in your accounting software, it is possible to get an accurate view into what lies ahead for your business. This invaluable information is something we often work through with the many businesses we have the pleasure of working with at Fitzpatrick and Robinson in the Macarthur and Sydney wide region. So what are the best forecasts to run?
Regular Cashflow Forecasts
A vital part of the short and long-term success of any business, is a positive cashflow position. Without it, operating the business efficiently can prove challenging. By running regular cashflow forecasts, these detailed projections can help you stay on top of your position and pinpoint any cash gaps that might be impending, allowing you to intervene when needed.
Certainly, in present economic times income can be unpredictable, not to mention the inevitable challenges of when customers might fail to pay an invoice or suppliers have price increases, all of which can start to eat into your available cash. Using forecasting, you can generate estimations on what upcoming weeks, months or quarters look to be financially tight and make short-term funding arrangements now, or reduce your spending all together.
Sales and Revenue Forecasts
It goes without saying that one of the pivotal foundations to a successful business is to keep it profitable. By profitable, we mean your sales stable and revenue streams predictable, in order to generate enough capital to fund any future growth plans. Knowing how those revenues will pan out over the course of the coming financial period is also important for future planning.
Like cashflow forecasts, revenue forecasts work much the same however, instead of looking at your cash position, revenue forecasting gives a projection of your sales and the estimated revenue coming into the business in the coming weeks and months. With better informed revenue information, this will allow you to stay on top of your profit targets and manage your working capital in a more practical way. As a result, this will improve your ability to invest in new projects, adding staff, or funding the long-term expansion of your business.
Look at Different Scenario Plans
Going back to our original statement, we would all love a crystal ball to see into the future of our business. Not all paths are predictable, but by running projections based on different possible scenarios, you can at least see what the potential impacts and outcomes may be. Working with an experienced business advisor like the team at Fitzpatrick & Robinson can help you look at this from an objective perspective.
Some might say it’s erring on the side of caution, but hashing out the ‘what-if scenarios’ can be a useful tool when considering the big business decisions. Looking at the possibilities like- what if there’s an economic recession? What if sales increase or decrease by 20%? What if we raised our prices by 10% next quarter? Using the forecasting tools available to you, by inputting relevant data you should be able to see how each option may pan out if the best or worst situation does in fact happen.
Using those forecasts to steer your strategy
Any proactive business should have a good business plan in place, even better is having the flexibility to evolve that plan to keep up with changes in the market along with the changing needs of your own business. You should make the most of your forecasting tools so you can provide your key stakeholders- your board, finance team and advisors- the most relevant and insightful information and projections to work with. Drawing from cashflow forecasts, revenue projections and what-if scenario planning, you‘re giving your business the best insights needed to update your business plan and strategy moving forward.
At Fitzpatrick and Robinson Accounting, we like to give our businesses a competitive advantage, so by regularly applying the above best practices, you’ll be equipped to make solid, well–informed decisions to keep your business one step ahead. Our team are on hand ready to discuss with you the many benefits of forecasting using the latest software and apps, and can showcase to you the value of such well-executed reporting to your business. Why not get in touch to have a coffee with us in our Gregory Hills office, conveniently located in Sydney’s South West, just 40mins drive from Sydney CBD. We’d love to hear from you!