Financial forecasting is one of the greatest challenges confronting a small business owner. But the process is important because it allows you to use 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. What forecasting does do is provide a guide to conditions that could exist for your business; basing your actions on this guide is the reason we forecast, and it’s crucial to your desired results.
A financial forecast enables you to monitor performance. And this is key: spotting a gap between forecasted figures and desired outcomes allows you to get ahead of problems before they become enormous disruptions. Acting on this (by making changes in spending, focusing on the most profitable sales opportunities, or developing a new marketing strategy) will put you back on track.
Your company will not always grow at the same rate as in the past. Based on your financial forecast, you may expect to grow at a faster pace – cash flow can change as a result of a growing or changing customer base, and new circumstances can trigger a need for capital.
Experience and practice help. As you learn to connect your projected numbers with factual data, you’ll become better at forecasting. And when your forecasts reflect the facts, you’ll feel more comfortable approaching potential lenders; your financial forecast will provide a believable foundation to support your loan request. Desired result: loan approved!