How financial forecasting can boost your business
Goal setting was the focus of Matthews Steer’s second Women in Business Breakfast of the year and, with the end of the financial year drawing ever closer, Matthews Steer’s Jess Bonacini opened proceedings with a short presentation on the importance of setting financial goals for the year ahead.
Jess spoke about how focused forecasting and budgeting has helped a number of Matthews Steer clients to improve their business performance, providing two examples.
‘Client A’s’ business is in a growth stage where it is critical to understand and manage cash flows of the business to facilitate the business growth. The Matthews Street team has been analysing which of their products and service – and which of their customers – are giving them GP target they are after to grow. This visibility has helped them to rationalise their business, hone their product and service offering and refine their client list.
The team has also been working with ‘Client B’ on forward projections to transform them from a reactive business to a proactive business. They currently have months where business is slow and this eats into their profit margin. The team helped them to look several months ahead to identify where cash flow issues might arise, identify why, and address those issues before they hit, rather than waiting until they are in the thick of it and only have the capacity to be reactive.
“People think forecasting is only something accountants do and don’t understand the value,” said Jess, “but if you go into the year blind and don’t have a vision for where you’re going and plans for how to get there it’s unlikely that you’ll achieve – or exceed – your goals.”
How to prepare a financial forecast
If you want to take Jess’ advice and undertake financial forecasting for your own business, here are the steps Jess recommends using the bottom up approach:
- Identify the profit you want your business to achieve at the end of each month that will give you an appropriate return on your investment.
- Quantify your overheads: the amount you need to spend to keep your business going each month comfortably and lean.
- Quantify the level of sales and direct costs required to achieve to cover your overheads to reach the desired profit you’ve targeted.
“Setting budgets teaches you about your business and what you have and haven’t achieved,” says Jess. “Forecasting gives you the opportunity to think about your business differently, and to be innovative and proactive with your business, and forward planning is key to that,” she said.
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