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Don’t Assume You Should Only Forecast Once a Year
Posted on 20th April 2017 in Cash Flow
Written by Freya Hughes
The Oscars happen once a year but most businesses operate daily so please don’t use this glitzy event as inspiration for your business. Relying on one lavish forecast, even with the most glamorous predictions in the world, will not steer your success. We’ve summed up, with a little help from our co-founder Hannah McIntyre, why you should be forecasting frequently if you want to have real confidence in your predictions. Even if you’re still in your concept stages of your business, this blog is a must read.
Imagine being able to see the future. What would you predict was on the horizon? Perhaps it would be Instagram posts with added real emotions, allowing you to feel the joy and warmth of a summer festival alongside your friends, or the glitz and glamour of the Oscars? Or highly intelligent AI bots waiting on us all hand and foot? I know I’d love to be able to make a guess that teleportation will be taking me to and from the office, and for it to be correct! Alas, it’s unlikely for now. But if you want a scaled-back version of these futuristic imaginings, look no further as cash flow forecasting for your business is where it’s at right now.
At FUTRLI, we have the pleasure of working with a lot of established business on a daily basis, and pride ourselves in making their day to day more efficient, helping plan the future of their business. But we’re also here to hold the hand of entrepreneurs that might need a little guidance and direction. We know that there is no such thing as a business without a business case. This is not a product or service, but sound, researched financial reports that can be relied upon. Once this has been created, log in to FUTRLI and see how the forecasting tool can apply your cash effectively to your outgoings.
Forecasting is, by definition, predicting business activity for a future period of time, working from assumptions. While this may come across as a risky thing to do, consider how much more of a risk you’re taking by not doing it. You won’t have a clue what’s around the corner and that’s fine. But why go into each week, or month, blindly hoping for the best? By formulating resolving plans for circumstances you can have a degree of calm in business – and it’s a great habit to be in. If you are just starting out and are forecasting from day one, you’ll have a better relationship with your figures. These assumptions get easier as you go: three years of forecasting will give you a great idea of how things tend to pan out (probably after a couple of slip ups along the way) and will give you the guts to put preventative measures in place.
“All forecasting is hypothetical – but that doesn’t mean it should be a monthly process. Yesterday I adjusted ours, and it makes you ask yourself can we spend more on X? Where did the sales get nailed? Where do we need to focus our attention? Have we got any accounts payable bills that we need to clear? FUTRLI is a hugely valuable tool for an entrepreneur to keep on top of the incomings and outgoings, and that’s why we created it.”
– Hannah McIntyre, co-founder of FUTRLI
Ask yourself questions
- How are you going to set targets?
- How are you going to know where to spend your investment?
- When will you run out of cash?
- How are investors going to monitor your progress?
These are of course just a select few of the hundreds of questions you need to ask yourself. By forecasting daily or weekly, you’ll find you have a better relationship with investors and staff, if you have them, as forecasting substantially reduces the stress of the unknown. That’s why understanding the past and present is so important when projecting the future. All-in-one services speed up the way forecasting is conducted so it’s wise to look at accountants that understand that. Make sure it works for you.
Don’t focus too heavily on profit
While profit is important, to keep your business going you need to put a focus on your cash flow. An accurate cash flow forecast will help you identify potential issues that might come up in the year ahead. No cash can eventually lead to bankruptcy.
Forecasting is a great way to minimise your costs, reduce stock when busy spells fluctuate, agree a suitable payment plan with suppliers, and keep a handle on whether you need to maximise (or even minimise) your sales volumes and margins. Have a look here at what FUTRLI can do for you. With our management accountants on hand, just on the other end of the phone, you can even have direct assistance with creating your forecasts.
It’s a competitive advantage
Updating your cash flow forecast on a daily basis gives you an edge over your competitors. Having a good knowledge of your cash position can, at times, be the difference between keeping your doors open or closed. Extreme outside factors are often waiting around the corner to disrupt the harmony in any business so forecasting will let you know when you’ll need to pull a few more sales in in a given time period. Most importantly, when business is good, you know exactly why so you can pinpoint your reaction. Don’t think of forecasting just as a way to protect yourself from risk. It can also be the shot in the arm your business needs to go from good to great.
Timing is everything
If invoices don’t get settled when you think they will be, you’ll be down on your cash flow. Similarly, if payment is demanded by a supplier before you thought it would be, you might find yourself strapped for cash.
Looking backwards at figures may feel more natural when preparing future figures but it’s not a great way of working. Looking to the future, and using the present to help you do it, is going to give you the best idea of where you’re going. While last year’s actuals will be of some use, it’s best to look where you’re going, not where you’ve been.
Estimate your expenses to be higher than you initially think. This will either save you a headache (or ten!) down the line, but might even leave you with more cash left over than you thought you might have. If you forecast for
a low revenue you’re giving yourself a worst case scenario.