Written by Tim Sernett, Accounting & Finance Advisor for SMBs | Owner-Financial Optics Inc | Entrepreneurship enthusiast | Dad | Sports nut
When it comes to your business, is it possible to see your financial future?
In my last blog post I talked about the importance of “knowing your numbers.” If you don’t know your numbers, you don’t know your business. Knowing your numbers helps you make better business decisions every day.
What I didn’t talk about is that financial information comes in two forms:
1. Information (“numbers”) about the PAST.
2. Information about the FUTURE.
Of course you know how traditional information about the past is reported to you – income statements, balance sheet, cash flow statements, receivables aging, job profitability, and so on. But is it possible to know your future numbers? And if you could, what questions would you want answered?
Forecasting: See the Financial Future of Your Business
Yes, given a set of modeling assumptions, you can see the financial future of your business. It’s called financial forecasting. A financial forecast provides a forward-looking view of financial performance.
More than just a budget, financial forecasting puts a financial lens on your key strategic plans. Plans such as expansion, equipment purchases, significant marketing campaigns, bonuses, profit sharing plans, increased staffing, debt reduction, and more.
Financial forecasting allows you to predict the financial impact of strategic plans on profitability, and perhaps more importantly, on cash flow.
Will you make better decisions today if you can visualize the financial impact on your business in three months, six months, or a year from now?
Of course! That’s the whole point of financial forecasting. Make better decisions today that drive profitability, growth, and cash flow in the future.
Financial forecasting help you make better BIG decisions. In addition, having a reliable financial forecast in place allows you to better visualize how making small improvements today can have a substantial impact in the future. For example, what would improving gross profit by just a few percentage points mean to you six months from now?
A key to using the forecast to make better decisions is comparing actual results with forecasted results.
I’ve helped many small business owners make BIG breakthroughs when analyzing variances between actual and forecasted results. The numbers don’t lie. A reality check when actuals don’t follow forecasted results often leads to very impactful decisions about pricing, operations, personnel, customers, vendors.
Those decisions are much easier to make when you’re comparing reality to expectations, allowing you to adapt plans and drive results towards a better future.
Our goal at Financial Optics is to help our customers grow financially healthier businesses. Financial forecasting is crucial to making better decisions every day, driving your business forward towards increased profits and stronger cash flow.
Need help putting together a financial forecast? We’re happy to help. Give us a call at 913.649.1040.