Why successful business owners no longer rely on historical financial reports but on cash flow forecasting and 3-way forecasting

Successful business owners no longer rely on historical reports, instead they’re combining the power of the cloud to look to the future and monitor the present and past.

Helen Cockle

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 and move to a forward-looking cash flow forecast and 3-way forecast

For small business owners, the main drawback of financial reporting is that it encourages them to look back on past performance and rely on this data to manage their businesses. This means you are always looking backward to make decisions about the future of your business, 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 the 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.

Forward-looking cash flow forecast and 3-way forecast

How can financial forecasting make it easier for small businesses and the small business owner?

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 does cash flow forecasting work alongside budgets?

If you set an annual budget, you’re putting a stake in the sand for what you expect the expenses of your business 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 doing a cash forecast you can identify and plan for future cash flow 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 for small businesses. Cash flow forecasts are not 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.

Staying connected to the market

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 objectives set in your business plan. 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 up the morale of each person in your small business 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.

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