We talk to Peter Foster, from Financial Strategic Insights, about financial forecasting. His 7-step process and key tips will absolutely help you make sure you’re getting right when it comes to financial forecasting.
This post will take you through:
- What exactly is financial forecasting
- Steps to getting your financial forecast right
- How to get the most out of your financial forecast
What exactly is your financial forecast?
Financial forecasting is unquestionably one of the most important things to get right in your business. Getting on top of this means you’ll have less stress, less employee turnover and better outcome when it comes to cashflow.
So what is it? It goes hand-in-hand with budgeting and planning. It’s looking at every aspect of your business, in terms of sales, revenue, resources and costs. It’s understanding your true costs and gross margins clearly, so you can see how it can be improved. Essentially, it’s developing a plan and making sure you follow that plan.
The financial forecast should be planned for the year but should not be left to just that. It should be looked at on a monthly basis and readjusted depending on changes in the business and demand. Ask yourself, what’s driving the demand for your forecast? Is it in order to bring on investors, get funding from banks or just to grow your revenue?
What are the steps?
Peter suggests the best way to put together your financial forecast is to follow his 7-step plan.
- Planning
What do you need to prepare before actually putting your forecast together? What data do you need? Who is going to be in charge etc? - Know your numbers
Look at your current performance. What’s your current revenue / profit / gross profit / gross margin?
- Look at your drivers
What are the drivers behind your business? What’s the maximum demand? What’s your market share etc? - Prepare your forecast
Create it and have it all written down and typed up. - Strategic scenarios
What are your options? Get 3 or 4 options and pick the best 1 or 2. - Finalise and publish
Make sure everyone who needs to know the plan, knows it. What do you have to achieve? Everyone needs to know. - Monitor the performance
Actuals vs budget and forecasts. Are you up or are you down? Why is this and what can you do to fix it or maintain it?
How do you get the most out of your financial forecast?
You should always plan with a better outcome as the main goal. “If you fail to plan, you’re planning to fail.” According to the Australian Bureau of Statistics, 97% of businesses in Australia are small businesses and it is estimated that 60% of these businesses fail within the first 3 years. If you don’t plan properly, you have a much higher chance of being in that 60%.
Peter suggests there are five key things to remember when planning your financial forecast.
- Know your numbers
- Put the right team together
- Use the right tools
- Focus your forecasting effort
- Reforecast
Making sure you have the right team putting the forecast together is ultimately one of the most important factors in making sure it’s the best it can be. You want someone who is involved in the business each month and knows the ins and outs of the business. If you don’t have someone, you can outsource them from companies like Financial Strategic Insights, who will have the experience needed to make create a good financial forecast.
You will also need the appropriate tools to ensure that you can produce the relevant information, with all the details included. Peter suggests using a three-way integrated forecasting software that can easily create a balance sheet of your profit, loss and cashflow together.
If you want to hear more about financial forecasting, head over to Mentored.com.au where you can find all the tools and resources to help you and your business.
To listen to the full podcast, follow the link here: https://www.podcastoneaustralia.com.au/podcasts/sme-experts/financial-forecasting-101__C iSl8mAyNE6e6qqEABqzIQ
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