Financial Forecasting – Why It’s Important for Your Business

There are many ways you can predict how your business will grow and thrive based on financial forecasting. Just like a meteorologist uses a range of data, including wind patterns, recorded temperatures, air pressure systems, etc., you too can create predictions based on past performances and future market trends based on current conditions (and it’ll be more accurate than predicting what this weekend’s weather is going to be).

This blog post will help guide you through 6 ways you can financially forecast your business with favourable results.

Past Records

It’s always a challenge starting from a blank canvas but luckily for you, past records of your business can help paint your financial picture. Understanding your current business performance is a great start to forecasting. First, pull income statements, balance sheets, and cash flow statements from previous years. From those documents, look for trends, highs and lows, investments, expenses, and anything else that could affect your business in the years to come.

Start painting your financial picture

Based on previous records, you’ll be able to create a picture of your business’s financial needs. The more detailed you are with reviewing your statements, the more precise your forecasting will be. Areas to carefully review include investments, cash flow, earnings, revenue opportunities and more.

Projected income

With the data you collected, you can create a projected income statement for the next year and calculate your gross margin based on those numbers. Remember, the more details you include from the past records that you’ve pulled, the more accurate your margin projection will be.

Time to budget

Now that you have a good sense of your financial future, it’s time to create a budget. Make sure you account for unexpected expenses alone – just like the weather, the market can be unpredictable.

Do your research

You can build the best business plan but if you don’t do your research to see how quickly external factors can affect your company’s success, then your plan will go up in smoke. Look for market variabilities, political events, pandemics, large tech announcements, anything that will affect your industry and business. This research can help you adapt quickly to any potential storms.

Stay in the know

Always monitor your business and how your plan is working. Regularly check in, pay attention to the news, and watch for any potential event that could impact your business. If you see something that could potentially hinder your financial forecast, create a plan to weather that potential storm or find a way to dodge it all together.

Just as the weather can be unpredictable, you can’t always predict when a global pandemic might happen, a crisis, or even a supply chain issue, so adapting and understanding ways you can pivot during these challenges can help your business through unfavourable weather. Creating an effective financial forecast is no easy task and having the accurate numbers to do so can be tedious. The DMC team can be your compass and work closely with you to understand your challenges and market predictions and help you create a strong financial forecast you can rely on.  

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