5 Steps to Improve Your Business Forecasting

Forecasts allow businesses to plan for the future with greater confidence, knowing their projections are based on accurate financial data. Forecasts improve your chances of maintaining overall financial health through varying market conditions, and your ability to capitalise on opportunities as they arise. 

In this blog post, we’ll take a close look at five steps for improving your business forecasting.

 

1.   Review Your Overall Business Plan and Structure

How long has it been since you reviewed your overall business plan and structure? Business owners are often so busy with day-to-day operations that they rarely take a step back and review the big picture.

Analysing your business plan is the first step in improving your business forecasting. It’s also important to consider whether or not your current structure is conducive to your future goals. 

A business plan is a written document that outlines your business’s future. They serve several purposes, including conveying your potential to investors, attracting employees and clients, working with suppliers, and keeping your internal strategies aligned. Reviewing your business plan on a regular basis allows you to ensure your forecasts are in-line with where you intend to be in the future. 

Business structure is another important item to review from time to time. Many businesses “outgrow” their original structures at some point in their development. Having an ill-fitting structure can inhibit your growth, strain your finances or even have legal and tax consequences. By reviewing your business plan, you’ll know when it’s time to make structural changes that will help you to meet your goals.

 

2. Audit Your Past Forecasts

It’s important to remember that business forecasts are not crystal balls. There’s nothing magical or superstitious about creating a forecast, and you should acknowledge that there’s a certain degree of uncertainty involved. That said, you can improve the reliability of your forecasts by identifying a full range of possibilities, using logic, and looking back twice as far as you look forward. What does this mean? 

The recent past is hardly ever a reliable predictor of the future; there just hasn’t been enough time for market swings, clarity on trends and other important factors.

Performing an audit of past forecasts will expose the patterns that make your current document more reliable. Ensure your past forecasts were based on accurate financial data, and decide if there are new data points you’ll need to start tracking for future forecasts.

 

3. Commit to Regular Forecasting Activities

Business forecasts are most reliable when they’re iterated regularly. You’ll need to create forecasts on a regular basis so you can analyse and review them for accuracy, and have a long-term record to see patterns and trends. This will require accurate, verified financial reports produced at regular intervals.

 

4. Ensure Your Financial Data is Accurate

So much depends on the accuracy of your business’s financial data, and this is especially true when it comes to business forecasting. The following documents are a good starting point:

• Balance Sheet. This summary of your assets, liabilities and shareholders’ equity will help you with your business forecasting and allow you to get a solid picture of your business’s financial health at a given point in time. You should plan on keeping a collection of accurate, dated balance sheets that you can look back on when you create future business forecasts.
• Cash Flow Statement. Your cash flow statement should record the amount of cash and cash equivalents flowing into and out of your business. Cash flow statements are great indicators of overall financial health, and they can be incredibly useful when it comes to business forecasting.
• Profit and Loss (P&L). This financial statement is a summary of revenues, expenses, and costs during a set period of time. It shows a business’s financial health in another way: it allows you to see the business’s ability to generate profit by increasing revenue, reducing costs, or a combination of both strategies. Profit and Loss statements are usually produced on a quarterly or yearly basis. 

A history of accurate financial statements is crucial when it comes to smart business forecasting. If you don’t have confidence in the accuracy of your past statements, do what you can to improve their quality starting now.

 

5. Enlist the Expertise of an Outsourced CFO

Just because your business may not be ready for a full-time CFO doesn’t mean you have to forego the many benefits of improved financial leadership. In fact, you can have access to all of these valuable services by hiring an outsourced CFO. 

Here at Altus, we offer CFO services to businesses of all sizes and in all stages of development. In addition to business forecasting, our CFO services include reporting, compliance, planning, strategy, and the implementation of new technology. To learn more about business forecasting, our CFO services, or any other business concern, get in touch with us at Altus Financial. We’re here to help you succeed.