Regardless of how large or small your business is, accurate forecasting for the year ahead is critical to maintaining healthy cash flow. Reduced cash flow is the most common reason for business failure, so being realistic about the sales you expect to make and the profit that will be generated from these sales is vital.
Here are our top tips on producing an accurate forecast.
Many business owners find themselves living in a fantasy world when it comes to forecasting. They only consider the best case scenario when investing in new ventures for example and fail to consider what happens if that venture fails to make a profit. Business costs can certainly rocket and there is often no guarantee that doubling advertising spend will lead to a doubling of sales.
Consider possible economic impacts
This year we are more likely to see inflation rise due to the falling value of the pound against other major currencies as well as the start of Britain’s exit from the EU. Ensure that your business is prepared for any shocks that might come in the next 12 months.
Consider seasonal demand fluctuations
If for example you own a retail business that sells winter sports equipment, then your busiest times of the year are unlikely to be the summer months. Take into account seasonal demand with your seasonal forecasting if your business relies on it.
Make sure you differentiate between the income your make and your costs
Not every business gets paid monthly, sometimes payment terms may be up to 90 days which means a long wait for money. The opposite may be true if you purchase equipment for your business on credit and the bill doesn’t arrive until the following month, putting your business under possible financial pressure.
Consider asset finance for your business
Asset finance can help you boost cash flow at vital times and ensure your forecasting remains positive for the year ahead.