Business owners must always be prepared to adapt to the changing environment of their industry, as it is impossible to predict what will happen in the future. One of the best ways you can prepare for change is to plan effectively, and financial forecasting is a key element of this. This can help you cope with any unexpected setbacks and help protect your business long term. Allow us to explain why forecasting could be so important for your financial health further down the line…
What is financial forecasting?
Forecasting is the process of predicting the future by carrying out an analysis of how your business has performed in the past and how it is performing in the present. Many business owners try to assess potential risks to make sure they are well prepared to deal with them. Financial forecasting estimates your business projected income and expenses for a specified period and considers economic factors that could impact revenue during this time. To carry out financial planning effectively, you will need to make sure that you are comfortable analysing data from a variety of different sources, and in real time. This analysis will allow you to draw out valuable business insights and make informed decisions about the future.
The importance of financial forecasting
Financial forecasting is key when running a business and will help with every aspect of your business decision making. Here is why:
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Future goals
Every business owner has a plan for where they want their business to go, and financial forecasting will allow you to consider your future business goals. If you can effectively forecast where your business will be in the next few years, you will be able to put goals in place for business growth and you can set financial targets to track your financial performance more easily and see if you are overachieving or underachieving.
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Identifying risks
Careful planning will allow you to identify any risks that you could encounter in future, so that you can prepare to deal with them accordingly. For example, if you notice you might encounter cash flow problems at a certain point, you can set income aside so that you have enough funding to get through this difficult period.
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Transparency with investors
If you are looking for new investors for your company, they will want to see evidence that you have planned effectively for the future, so having detailed financial forecasts incorporated into your balance sheets can go a long way to getting them on board with your business. It will also show them that you are organised and ambitious, which could secure the crucial funding that you need to take the next steps with your venture.
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Spot money saving opportunities
Financial forecasting can not only help you achieve your targets, but also identify opportunities where you could save money. You may be able to spot unnecessary expenditure that will no longer be required, or areas where you can reduce business costs in the future, money which can be spent in other areas to help facilitate growth.
The financial forecasting process can be difficult to navigate at times, so you may require the assistance of an expert. At Bells Accountants, our team of expert accountants can provide you with their expertise and advice when managing finances, so that you can put together detailed financial forecasts and plan more effectively for the future. If you would like to find out more about our accounting services, give us a call on 020 8850 0700 or email to see how we can help.
