Statistics show that more than 60% of small businesses fail within the first three years. More often than not, it’s because of their lack of planning and control of their resources.
At the core of every business should be the objective to improve profitability and generate, and financial forecasting is an essential business process that can help you achieve just that.
Financial forecasting uses historical financial performance, economic conditions, and trends, among other factors, to predict future business performance. It allows businesses to set and meet goals—it’s much like a map that will take you where you want your business to be for the long haul.
If the above statement isn’t any indication, the question is not the value of financial analysis and forecasting for a company, but the scenarios when you should consult a professional for this service.
• When you’re starting your business
There are plenty of reasons to get a financial forecast prior to starting your business. But, the most important is that it assesses the financial viability of your potential business. It creates a direct, clear path from where you are to where you want to go by setting a benchmark against which to measure your future performance and identifying potential risks and opportunities to keep your business running.
• When you’re raising funds
Part of starting a business is raising capital and a financial forecast can help you attract potential investors. It provides the necessary information to help them understand your financial health as well as where your business is headed. How long will it take before it breaks even and reach profitability? How much of a risk are they taking? You will need solid data to support your predictions such as market trends, economic performance etc. and this is something a financial forecast can show.
• When you’re assessing the performance of your current efforts
Survival in business requires checking in against your planned course and making adjustments on a regular basis. Are you meeting your sales goals and staying on budget? Comparing projections against actual results identifies the variances from the plan, allowing you to take corrective actions required to get you back on track, if not make improvements.
This also illustrates the importance of creating different scenarios in a financial forecast to help you better prepare for different possibilities. It helps you understand the risks, the impact of various market conditions, and the possible results of certain decisions. Basically, you look at the bigger picture when doing a financial forecast.
A Financial Forecast Analyst to Help You Plan Your Success
A financial forecast analyst can help boost your profits by improving efficiency, controlling costs, and maximising the value of your data by making calculated recommendations on potential investments, among other business considerations.
There are many scenarios where a financial forecast can help such as expanding your business in terms of manpower, location, and services offered. But, the above points pretty sum it all. They can provide you with tools to make budgeting and forecasting easy as well as training so you can have more control over your data.
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