The main benefit of Futrli forecasting, of course, is that the data is received in real-time – it is ‘live’. This makes it more actionable, and business owners can respond immediately to what is happening on a day-to-day basis. This means identifying both risks and opportunities, with no time-delay affiliated with the figures at all.
Leave historical financial reporting in the past
For small business owners, the main drawback of financial reporting is that it encourages you to look back on past performance and rely on this data to manage the business. This means you are always looking backwards in order to make decisions about the future, so you’ll never see what’s coming up on the horizon.
If you have great support from your accountant then they are, at least, trying to provide you with monthly financial reports. But too often even these are received seven days or more from month end. As a business owner, you’re in reactive, not proactive territory. With unstable economies, competitors and staff issues, there is already enough to focus on without making critical decision-making harder for you.
How can financial forecasting make it easier?
Financial forecasting, or predictive future reporting, is the preparation of scenarios and forecasts based on objective and supportable assumptions. Not reviewing, or using your financial data to drive your business forward, is the equivalent of running your business in the dark.
Scenario planning allows you to think through different outcomes and be prepared for different eventualities. It also provides more value to the running of a company by enabling both business owners and executive management to collaborate on the future of the business and be more proactive in their financial operations and daily decisions.
How do forecasts work alongside budgets?
If you set an annual budget, you’re putting a stake in the sand for what you expect your expenses will be in the next 12 months or how much you predict to generate in revenue. Budgets typically relate to last year’s performance, which is of course hard if you’re just getting started, and they are optional.
By projecting your future cashflow you can identify and plan for future cashflow shortages well in advance. Cash is the lifeblood of your business so whether that includes obtaining a loan from the bank, reducing stock intake or increasing seasonal promotions, the sooner you can anticipate this financing need, the better prepared you are and the healthier your accounts will be.
Stay connected to the market around you
It’s important to forecast not just the expectations of the best scenario but also the worst scenario. Forecasting isn’t based on your business performance and predicted performance alone, but also that of the market around you. You need to know your customer base and competition inside out.
Flexibility is key to running a successful business. Having financial foresight not only keeps you on top of your own business needs but also helps to keep you one step ahead of your competition. Challenging your accountant if they don’t meet your expectations is in the best interests of your business.
Make employees accountable for their figures
Future predictive reporting may also include critical success factors (CSFs) and key performance indicators (KPIs). These are the essential areas of activity that must be performed well if you are to achieve your business objectives. If your management is used to focusing most of their time and attention on historical reporting instead of business forecasting, you can impart some invaluable knowledge by helping them to understand the difference — and then shift their attention to focus more on the latter.
By enabling your staff to achieve their own business goals and KPIs, you offer empowerment, accountability, and motivation in the workplace, which in turn leads to good team morale. Keeping staff morale up is a frequently overlooked aspect of the business owner’s role. The mental wellbeing and general happiness of your employees are important contributing factors to the general success of your business. Unhappy employees are unlikely to be productive employees, and this will have a knock-on effect on your company’s prospects.