Producing regular management information is one way to help improve your business decision-making. But looking at historical numbers can only tell you so much.
In business, you want to know what the future holds. Forecasting tools are vital for protecting your data in advance so you can make truly informed decisions about your future strategy. By running projections based on these historical numbers and producing detailed forecasts, you can get the best possible view of the road ahead—that’s invaluable.
Run regular cash flow forecasts.
Positive cash flow is vital to your business’s short-, medium- and long-term success. 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 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, they can all start eating into your available cash. Using forecasting, you can extrapolate your numbers to which weeks, months or quarters are 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 a key foundation for enterprise success. If you generate enough capital to fund your growth plans, you want your sales to be stable and your revenues predictable. You must also know how those revenues will pan out throughout the coming financial period.
Revenue forecasts work much like a cash flow forecast. Instead of looking at your future cash position, a revenue forecast calculates your sales and how much revenue will likely be brought into the business in the coming weeks and months. You’ll be more on top of your profit targets with better revenue information. You can manage your working capital more practically. 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 have a crystal ball to predict this exact future path. But by looking at different possible scenarios, you can run projections to see potential outcomes and impacts.
These ‘What-if scenarios’ can be handy tools for 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? Plugging the relevant data into your forecasting engine allows you to run these scenarios and see how each option pans out. That’s useful when the worst (or the best) happens.
Update your strategy based on your forecasts.
By making the most of your forecasting tools, you can provide your board, finance team, and advisers with the most insightful data and projections.
A good business plan is designed to flex and evolve to meet the needs of the changing market – and the changing needs of your business strategy. By using your cashflow forecasts, revenue projections and what-if scenario planning, you give yourself the insights needed to update your strategy and business plan. You can make solid, well-informed decisions and keep yourself one step ahead of your competitors. In the dog-eat-dog business world, a competitive edge can make a huge difference.
Please contact us if you want to explore forecasting’s positive benefits further. We can showcase the latest forecasting software and apps and demonstrate the value delivered through well-executed forecasting and longer-term projections.