Using forecasting to help your business planning and decision-making in your business is a helpful tool to get the best possible view of the future ahead. Historical numbers create a good quality forecast to give your business an informed view of your future business and finances. In business, you want to know what the future holds to help make truly informed decisions about your future strategy. By running projections, based on historical numbers, and producing detailed forecasts, you can get the best possible view of the road ahead – that’s invaluable. Here are some forecasting tips that can help you make the best-informed decisions for your business.
Run regular cashflow forecasts
Positive cash flow is vital to the short, medium and long-term success of your business. Without cash, you simply can’t operate the business efficiently. Running regular cash flow forecasts helps you overcome this challenge. With detailed projections of your future cash flow, you can spot the cash gaps that lie further down the road and take action to fill these cash flow holes.
Income can often be unpredictable, especially in challenging economic times. If customers fail to pay an invoice, or suppliers increase their prices, this can all start to eat away at your available cash. Using forecasting, you can extrapolate your numbers forward to which weeks, months, or quarters are looking financially tight. And with enough prior warning, there’s plenty of time to look for short-term funding facilities or to get proactive with reducing your spending.
Run sales and revenue forecasts
Keeping the business profitable is one of the key foundations of making a success of your enterprise. You want your sales to be stable and your revenue predictable if you’re going to generate enough capital to fund your growth plans. And you need to know how that revenue will pan out over the course of the coming financial period.
Revenue forecasts work much like a cash flow forecast. Instead of looking at your future cash position, a revenue forecast gives a projection of your sales and how much revenue is likely to be brought into the business in future weeks and months. With better revenue information, you’ll be more on top of your profit targets. You can manage your working capital in a more practical way and you can improve your ability to invest in new projects, additional staff or funding for the long-term expansion of your business.
Run different scenario plans
What’s going to happen to your business in the future? None of us has a crystal ball to predict this future path exactly. But by looking at different possible scenarios, you can run projections to see what the potential outcomes and impacts may be.
These ‘what-if scenarios’ can be exceptionally useful tools when thinking about big business decisions. What if there's an economic recession? What if our sales increased by 25%? What if we raised our prices by 10% next quarter? What if we lost a quarter of our customers? By plugging the relevant data into your forecasting engine, you can run these scenarios and see how each option pans out. That’s massively useful when the worst (or the best) does happen.
Update your strategy, based on your forecasts
By making the most of your forecasting tools, you give your Board, your finance team and your advisers the most insightful data and projections to work with.
A good business plan is designed to flex and evolve to meet the needs of the changing market – and the changing needs of your own business strategy. By making use of your cashflow forecasts, revenue projections and what-if scenario planning, you give yourself the insights needed to update your strategy and your business plan. You can make solid, well-informed decisions and keep yourself one step ahead of your competitors. In the dog-eat-dog world of business, that’s a competitive edge that can make a huge difference.
If you are wanting further advice on business planning and forecasting to help you make the best quality decisions for your business, do not hesitate to contact the team at ilumin today.