As an entrepreneur, it’s nearly impossible to predict the future – or is it? What if we told you there was a way to predict your finances and protect your company from potential financial risk? The answer – financial forecasting.
Financial forecasting is a process that helps your company prepare for its financial future in terms of budgeting and determining annual revenue. However, this process can be initially overwhelming for small businesses looking to secure their finances.
The Rare Strategies team understands the value in financial forecasting and wants our clients to feel confident planning for their financial future. We understand there is more to business management consulting than what meets the eye. That’s why we’re taking the time to highlight exactly what financial forecasting is, why it’s important to your business, and the advantages of financial forecasting.
What Is Financial Forecasting?
Financial forecasting is the process of analyzing past financial data, current data, and forecasting how well your business will perform in the months ahead. Most financial forecasts are determined by previous income statements, which help businesses determine projected expenses and income while closely monitoring various conditions that could impact those forecasts.
Typically, most financial forecasts project income for the immediate future, in addition to long-term financial goals and planning. By having this information accessible, you and your team can easily prepare for the future.
At Rare Strategies, we’re more than just business consultants. We also offer financial forecasting services to our clients. These services allow our team to take a closer look at your revenue and see what factors help you stand out from local competitors. Identifying your business’s strengths and having relevant financial information on hand makes it easier to plan for the financial future and continue long-term success.
Why Does Financial Forecasting Matter?
Financial forecasting helps businesses stay aligned with their financial goals and financial priorities. For example, if you plan to release a new product or increase quarterly sales, you must first examine the financial forecast. If your business can increase sales or product production, their expenses shouldn’t negatively impact your gross income. Without these numbers, it’s challenging to know what your business is capable of and where it currently stands.
Financial forecasting helps determine multiple factors, such as annual budgets, daily operations, and helps business owners make critical decisions. Having access to valuable financial information and insight allows entrepreneurs to make the right decision for their businesses and employees.
The Top Three Advantages of Financial Forecasting
There are plenty of facets to consider as a business owner, so financial forecasting might not seem like a top priority. However, the reality is that it’s essential in helping you remain better informed for the future.
While there’s no guarantee of 100% financial security as an entrepreneur, financial forecasting allows business owners to prepare for and achieve important financial milestones. There are several benefits to financial forecasting that can positively impact your business, such as:
- Create Tangible Benchmarks
- Benchmarks are something every business needs to gauge their success. Financial forecasting allows businesses to set realistic benchmarks rather than estimate their potential earnings for the quarter or year. Reaching these benchmarks helps set your business down the path to success and boosts internal morale.
- Minimize Financial Risk
- Every business decision involves risk; however financial forecasting helps minimize that risk. Understanding the financial variables that impact your business and having a plan to handle these hurdles helps your business have stability in times of uncertainty. Worst-case scenarios don’t have to be overwhelming challenges any longer.
- Develop Long-Term Financial Goals
- Every business has goals and objectives to work towards however, setting achievable financial goals is much easier with financial forecasting. You can begin to prepare for demand increases or how to launch a new good or service with ease.
Financial forecasting is a great way to maximize your revenue and allows you and your team to make more informed decisions regarding your spending and financial security. It helps provide financial stability and presents more opportunities for your business.
How to Create a Financial Forecast
Now that you know more about financial forecasting and the benefits it presents to your business, it’s time to discuss how to create a financial forecast. As business management consultants, Rare Strategies can help you put together this forecast while monitoring your financial spending and potential areas of development.
Group Together Necessary Components
To create a financial forecast, you must gather all the necessary information. Start by retrieving all previous financial statements – you’ll need these to take a closer look at your financial history. Once you have the records, you can move forward.
Begin Formulating the Forecast
Start to analyze your previous statements, and mark where you saw tremendous growth or dips in income. Also, ask yourself what expenses are the most costly? Assessing this information will help you note trends in your spending and see where you can improve in certain areas.
Also, see how your industry has evolved over the years. How has your business kept up with these changes? Are you an industry leader or still catching up to recent trends? Seeing where you were most successful and how you could improve will help you develop the forecast.
Once you’ve noted income and expenses, it’s easier to forecast other potential financial risks, which leads us to our final point.
Calculate Other Variables
As essential as it is to look at previous and current financial standing, completing a financial forecast involves many other variables. For instance, weighing various internal and external risks to your company. Economic depressions, global pandemics – all of these could take their toll. Not to mention the potential of a product launch going unsuccessfully.
Alternatively, there are also positive variables to consider, like successful new product launches or expanding the company. Having an accurate forecast can help your company know if it will survive make-or-break scenarios.
Rare Strategies believes in having a plan in place for every situation. That’s why we also provide scenario planning services! Every business needs scenario planning to help account for these unknown variables at one point or another. This service, combined with our financial forecasting, can set your business down the path to success.
Explore Business Consulting with Rare Strategies
Financial forecasting is an essential service to help your business. Still, the truth of the matter is that there is more to business consulting than you’d think. While it’s easy to think about the future, setting realistic goals and plans in motion can be difficult. Hardest of all – how do you know what to change if you don’t know what needs to be done?
At Rare Strategies, we understand change can be uncomfortable and overwhelming. However, hard conversations are necessary to achieve success. That’s why our team is here to help. We always offer realistic truths and work alongside our clients to implement real change and solutions. If you’re ready to learn more about financial forecasting or other business consulting services that can give your business the momentum it needs, request a free consultation so we can learn more about your business.
Want to learn more about who we are? Explore our about page to see what drives our passion! Or, if you’re ready to kickstart your business’s path to success, download our free resource Four Reasons to Schedule a Strategic Business Review.