Financial Forecasting Edinburgh
Allsquare Edinburgh will produce a Financial Forecasting calculation to help estimate your company’s future.
Forecasting the financial future of your business isn’t easy, particularly if you own a startup, with no trading history under your belt.
Nonetheless, financial forecasts are vital tools for assessing the past, present and future financial status, in order to inform effective decision-making.
Such forecasting over time can also help you identify trends in expenditure and revenue that could affect the strategic goals of your business.
As such, forecasts constitute an integral aspect of business management.
How frequently should I make forecasts?
In the early days of a business, or during periods of rapid expansion or contraction, it’s advisable to carry out weekly forecasts. During these ‘make or break’ periods, your finances require close monitoring in order to spot any problems early. This enables you to develop strategies to remedy issues before they develop into major obstacles. More established businesses should engage in quarterly forecasts at a minimum but probably won’t benefit from anything more frequent than monthly forecasting.
What sort of things should I consider in a financial forecast?
Forecasts will be more accurate and will provide deeper insights if a greater range of information is used to create them. Depending on the specifics of your business and the financial insights you wish to generate, consider including sales, cash flow, the cost of goods sold and expenses.
Established businesses will find sales easier to estimate as they have access to previous sales data. Estimates should be informed generally by the economic environment and specifically by current market conditions. New businesses can form sales forecasts using market research and benchmarks provided by the competition and the wider industry.
In both cases, actual sales figures should be reviewed against the forecast, after the fact, in order to revise the forecast accordingly if necessary. The next step is to try to identify the reason for the discrepancy between your forecasts and reality, to highlight any problems that are preventing your sales from reaching their full potential.
Cash flow forecasts aim to project the sum of money expected to flow in and out of your business. This allows you to highlight when your business may have surplus cash available, and when there may be shortages, so you will be able to make the right decisions to put your business on the best footing possible.
Cost of goods sold (COGS)
This factor applies to businesses selling physical products. COGS forecasts cover all of the costs associated with the product which are incurred by you, including raw materials, manufacture, transport, packaging and labour costs. COGS forecasts are connected to sales forecasts in that if you predict a growth in sales, the COGS figures should increase correspondingly, to reflect the greater stock or production required.
Expenses forecasts extrapolate your operational costs over a certain period of time. Expenses include wages, rent, insurance and advertising. It is important in your forecast to account for potential changes to your expenses, such as expanding the workforce or an increase in production costs.
Putting aside the time to draw up accurate financial forecasts for your business will pay dividends in the long run, serving as both a data-mining analytical tool and a problem solver. If you would like any further information on the processes involved, don’t hesitate to contact Allsquare today 0131 343 1510.