A definitive means of eliciting anguished groans from entrepreneurs is advocating financial forecasts. Forecasting is one of the greatest challenges confronting a small business owner. But the process is important because it permits using the lens of experience to peer into the future.
Nevertheless, financial forecasts are frustrating because they require time to establish expectations that are almost never achieved as planned. This should be viewed as the key purpose of forecasting. It represents a guide of the conditions that could exist for your business. Taking action based on this guidance is crucial to deriving the desired results.
Topping the feats achievable with a financial forecast is the ability to monitor performance. When a chasm emerges between the forecasted figures and desired outcome, you get ahead of problems before they become enormous disruptions. Straying from expectations is a motivation for changes in spending, revised focus on the most profitable sales opportunities, or new marketing strategy.
Experience allows you to become a better forecaster. You learn to connect your projected numbers with factual data. This has the added benefit of giving your financial forecast a believable foundation for money lending sources. Simply growing at the same historical rate as recent years doesn’t always happen. A faster pace may be reasonably expected based on the most recent trends. Cash flow scenarios can change from serving a growing customer base or different types of customers. New circumstances can trigger a need for capital. Credible financial forecasts quantify cash requirements to assure business sustainability.
The Finance Writer 