A robust financial forecast is going to be essential in helping you navigate the road ahead. Being equipped with an up-to-date understanding of revenue and cash outflows, and their impact, will help you identify pressure points and potential shortfalls so that you are able to take action ahead of time.
During the past 15 months many businesses have completely changed approach, others are embarking on a slow recovery. You may not have the comparable historic data on costs and revenue that you had previously. Factors like break even margins, funding requirements, fixed and variable cost and staffing will all need to be reconsidered. Historic results and previous assumptions are unlikely to still be valid so now is a good time to sit down and redo your forecasts.
In the current climate, with circumstances still being relatively unpredictable, it is worth considering financial forecasts that allow for multiple scenarios – that way you build in the flexibility to adapt to changing conditions. Typically, it is good practice to work up forecasts that allow for three key scenarios:
Once you have your forecasts, use them. They can afford you a degree of control over the decisions and choices you need to make to secure your business’ future. For those who are rebuilding, your forecast will help to show where real cash savings can be made and when best to time these. For those businesses that are profitable and cash rich, forecasts can be invaluable in helping inform whether you reward employees, invest back into the business or accelerate the repayment of any debt.
Robust forecasting is underpinned by having good accounting records, up-to-date management accounts and financial systems that deliver reliable and accurate information. We know that owners have many competing priorities – work with your advisers to help ensure your forecasts are a tool that enable you to make the best decisions to drive growth and the success of your business.
Jane Wills (Pictured) hwca.com