Our Virtual CFO services, may be what your business needs to negotiate the daily stresses of today’s modern business world. As you know, as business owners we get so busy and overworked that we forget all about our most important resource, our business finances. It can seem virtually impossible to add more things to your plate in a busy day as things gets so demanding. To do financial forecasts may be common knowledge for some business owners but to actually have the time and skill to build a reliable forecast without any nasty surprises later is not for the “faint hearted.” Excuses come from a lack of time to a shortage of resources, there are definitely many reasons you may not have a financial forecast ready.
With this simple tool you are able to see and plan for the months ahead which will provide you with the competitive advantage and edge you need to succeed in today’s world. Continue reading more to learn the importance of a financial forecast and how to build one the right way the first time.
What is a financial forecast? Financial forecasts and models are used all over the business world, to predict the income and expenses for a business or project. These estimates and forecast are typically done over a period of one year but are known to be as far as three to five years ahead into the foreseeable future. The information that is used to build such reports includes historical financial data, like financial statements, financial reports as well as external data from the market or your key economic indicators. These financial forecasts are used to set expectations for the future and determine if your business will still be viable to trade as a going concern.
Why should you create a financial forecast? As a business owner or entrepreneur, your time as a resource is extremely valuable. This could literally mean “life or death” situations on most days. All your time and focus is normally spent on making money for your business by finding new opportunities, product research for new sales, investing and looking for new ways to grow your business.
Far too often, financial projections gets put on to the back-burner by business owners or don’t even get looked at. Our intention might not be to overlook them or their importance to our business but are mostly overlooked due to more pressing matters that might be on hand. Having a financial forecast might not be able to help you immediately or change things significantly as other task can, but it will secure your business for long-term accomplishment. Financial forecasts is more than a snapshot of your finances in the future but offer a roadmap for your business to follow, so you don’t fly in the dark.
Get a more direction and clearer picture for your business You might have certain targets or goals for our business in mind, whether it be to improve your sales or growth strategies to deal with competitors in your sector of business. Doing monthly, quarterly or yearly reporting might be so natural among many businesses that it becomes a routine. What is our overall goal for our business? Forecasting becomes so routine that we don’t stop and take a closer look at what our numbers are saying. Are these numbers still relevant for our project? Have we factored in any recent changes in our project? These are the costly mistakes we as business owners often make.
Without seeing the real picture of our business, we are left with setting unpredictable goals which will not be achieved. By creating a financial forecast we are pressurising ourselves to put our plans and goals in writing. Look at your historical information and trends of the previous year to build a reliable forecast. Start off by building a one year forecast model to track its current path against your projected trajectory. Look at where your business will end up if matters are left to continue at the rate that they are right now. Ask yourself, is that where you wanted your business to be? Are you still on track to meet your goals and expectations? If not, then change your roadmap to avoid costly bumps in the road.
Make adjustments early and regularly Businesses that are able to adjust to the conditions in time are likely to survive. The ones that are not able to make the adjustments in time will fall behind with their competitors and face problems. Gladly with a carefully planned out cash flow forecast you are able to adjust for any possible “road blocks” that you might encounter. The best plans often hit roadblocks now and then but being prepared for the change is essential for survival.
Design the right KPI’s for your business There are countless reports and data files to look at. Many of them might not be relevant for you causing you to spend time analysing the wrong data. Focus on the key numbers and reports that will make the most sense for your business and cut out all the confusion. Your business will be able to move more accurately by focusing on your most important KPI’s. This will help you to recognise problems much sooner for you to take corrective action.
Plan for more than one worst case scenarios You can build in what-if scenario’s into your cash flow to plan for your worst case situations for you to see what it might look like and resources needed to overcome. How will these worst case scenario’s impact on my business? Will we survive if we don’t get paid by our customer? This is what will keep you ahead of the pack with your competition.
Focus on what matters when you know your numbers You can work smarter knowing your numbers and focus on what is important in your business. By using our virtual CFO service you will have more free time. You also do not have to hire a full-time employee and can focus all your energy on running your business.
As financial experts in our field, we can develop your financial forecasts and provide you with an unbiased outlook and view on your financial position. Work with our virtual CFO only when obsoletely needed and pay less for what it will cost to have an in-house finance executive at your disposal.
