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6 Reasons to Prioritise Forecasting
Posted on 28th June 2017 in Business
Written by Freya Hughes
It’s an uncanny feeling when popular culture predicts the future, but it happens time and time again. While it’s nice to get an idea of what’s next in life, sometimes it’s better left to the pages of the books… Orwell would be pretty impressed with himself right now! But, let’s not dwell on the dystopian-tinged couple of years we’ve endured. Instead, let’s look at why forecasting needs to be at the top of your priorities list, so you can concentrate on forging a brighter future for your business.
We are all about the future here at FUTRLI HQ, Brighton. Running a business from a spreadsheet is confusing, stressful and can keep you up at night, as you simply cannot guess what might happen next. Putting forecasting at the top of your business agenda has proven to help businesses succeed, so in this blog we’re going to give you just a handful of the many reasons prioritising forecasting is a critical process to get on board with.
1. Predict the future
We are FUTRLI, pronounced ‘future-lee’, after all. Our main mission is to get business owners and accountants to focus on the future. We believe that while historical reporting is handy, it’s far more beneficial to be looking ahead. Ask yourself what your business goals are for the next quarter, or even year, and use the forecast to get there. If you’re unsure, ask your accountant. While your forecast isn’t quite a crystal ball, you will gain valuable insights into what might happen next. Say you’d like to expand to a larger premises, and soon after that hire some more staff. If you’re relying on historical data, this is a big gamble that may result in the failure of your company. If your accounts aren’t healthy enough to support growth, your forecast will alert you. It’s a really powerful tool that trail blazes the path to success, if you let it. We’ve already learnt that a forecast is comparable to a GPS: it’ll guide you past obstacles in a way your fixed budget can’t.
The idea is you’re forging a path with a clear and insightful plan. This plan is made up of last year’s actual figures, with information pulled from your P&L. This will predict the performance of your business for up to two years.
2. Feel secure in your decision making
Because your forecast is generated from your actual data combined with your P&L, you know you can trust it as a springboard for decision making. Your forecast will display any trends and patterns that crop up in the day to day of your finances, so you can predict when a slow or busy month is approaching. Having been alerted to what might happen, you can prepare for these eventualities. For example, you’re expecting a busy spell around Christmas, so you can either raise your prices to add more value to products or services, generating more revenue, or lower prices to attract a higher volume of customers. The best part of forecasting is it’s flexible, so there’s a lot of space to try out outcomes.
3. Learn from past mistakes
Forecasting is a great way of tracking your Key Performance Indicators (KPIs). If you’ve recently started forecasting, you’ll know that measuring KPIs is fundamental to the health of your business. They’re quantifiable measures of business success, usually broken down by department. Once you get your forecast set up, you’ll realise how much easier maintaining a healthy bank account is. Learn from your previous pain – and don’t ignore the power of a forecasting tool.
4. Save cash
Supply and demand is a difficult thing to measure if you don’t have a forecast set up. Your customers are fickle so will not hesitate to seek services or products else where if you cannot provide. Having an insight into how much stock you’re holding in real-time and knowing when busy spells are likely to occur is going to dramatically reduce customer disappointment. It’s great for inventory management: you’ll no longer be holding too much stock, nor short as your forecast can tell you when this level rises or falls.
5. Achieve sustainable growth
If you can input your earnings against your outgoings, you can identify a good time to invest in your business’ growth. When you were forced to track everything in spreadsheets, how many times did you forget to (or make an error) manually input something? Your forecast, especially if you’re using add ons and apps, will be in real-time, meaning what you see on your screen is to be relied upon.
You can ensure you’ll have enough income per month to match a higher rent, or perhaps invest in a one-off payment for new kit without it affecting your bottom line. If you set up FUTRLI alerts, you can program your forecast to tell you if you’re approaching a limit on your bank account, preventing you from making spur of the moment snap decisions – and from suffering buyer’s remorse.
6. Get an edge on your competition
Because the transition to the cloud and it’s various functions is a surprisingly slow one, the chances are your immediate competitors aren’t on it yet – especially if you’re a small business. While the business around the corner from you might be offering similar products, they can’t identify any of the issues we’ve covered above. It would be like running a race against someone in a blindfold – it’s not fair but you’re almost certainly going to reach the finish line first.
Teaming up with a Management Accountant will also see you start thinking outside the box, and more about what’s around the corner. Helping you strategise to meet your goals – and helping you achieve them – is a surefire way of you creating a killer business strategy, which is incredibly likely to guide you to success.