Financial stability is perhaps the most important facet of a successful business. And yet, many business owners are only looking at cash in and cash out. Cash in and out is very different from forecasting the business with precision that it takes to grow predictably.
Watching only your expenses and receivables leaves you vulnerable to factors that you can’t foresee in the long term in that kind of financial planning model. These factors include compressing margins, the impact of losing a big client, overspending on vendors, and more.
Forecasting software helps to show these unexpected changes to your finances by evaluating the past to predict the future. Here are the top three ways that building a proper financial forecast can help you grow.
#1. Get REAL TIME and meaningful data
If you are new to forecasting software, you can import your previous data using a spreadsheet. Once the system has the data, it takes into account your company’s history to build out predictions.
You can forecast your profit and loss statements, expected sales tax and the timing of how invoices are paid. All this information will build a full view of how your company’s finances operate so you can make informed decisions each month. The better informed your decisions are, the less likely it is that you’ll be struggling to make ends meet at the end of the month.
Some months, you might experience an influx of cash and be tempted to spend it or take a distribution. Other months, cash might be tight and you have to defer your own paycheck or wire money into your business account from your personal savings to fund payroll. Seasonal businesses are very difficult to run and build a lifestyle around due to the unpredictable nature of the cash flows.
These business owners see immediate benefits to spending time on their financial forecast and annual budget.
#2. Evaluate your vendors each year
Vendors often account for your largest expenses each month. While vendors are an important aspect of your business, it is often easy to let these expenses grow unchecked.
Just like your cashflow comes in waves, so do vendor expenses. You might have greater need for a vendor during different times of the year. Or, you might use a vendor for a one-time project, such as an IT vendor who implements software for you. You may also get comfortable using the same vendors for 5, 10, or 20 years and never feel the need to shop around and compare prices.
When you look at your finances in aggregate, you can see trends in total spend with each of your particular vendors. This gives you the opportunity to negotiate bulk pricing or to price out similar vendors to make a switch.
#3. Use technology to streamline, save costs, and empower staff
Your staff can operate in confidence if they know that your business is on solid ground. The more confidence you can build for the future, the better for both you and your team. Forecasting can show areas where you’re spending money on duplicative systems or processes to save in the future.
And the great part about streamlining, saving and empowering your staff is that you won’t fall behind financially. Some businesses make tough decisions, like cutting a staff member to make up for gaps in the budget only to add back in a staff person later when things are going well. These sort of stops and starts make consistency and success difficult and don’t build good company morale.
Talk with your bookkeeper or CPA about your financial forecasting. They should provide some level of financial guidance other than tax and compliance to help you succeed long-term