Forecasting Tips

Most entrepreneurs run independent large and small businesses because they had a vision for what they wanted the company to be, and took steps to create it, nourish it, and grow it. They can see the big picture, and the even bigger picture, and just want to get there as quickly as possible. They enjoy their days thinking about the possibilities and options ahead of them. What most do not enjoy are the day to day details and minutia that have to be tended to – like budgeting, reconciling and forecasting. And that is where a good business comes in.

Each business needs a solid financial plan in order to grow. Typically once a year, a company will budget out monthly expenses and revenues, with a projected annual profit calculation. When forecasting your expected income, know that cash rarely ends up coming in exactly as you had planned. The longer you are in business and the better you understand the fluctuations of your business, the better your projections will be. You should also rely heavily on your business’ input as he or she can bring valuable industry insights to the forecasting process.

It is not uncommon for companies with aggressive growth plans to generate more than one annual forecast. They plan for the worst, and the best case scenarios. Then, if the year doesn’t go so well, they know they can survive it financially, but if they have a great year, they also know what to do with that additional profit for the company. Having your accountant reconcile your actual expenses and revenues each month to both sets of plans allows you to make changes in either direction, strengthening the company month over month. A good business will recognize these trends, document the reason for the fluctuations and build them into the next year’s forecast.

Your business can also be responsible for tracking forecast and actual expenses at a greater level of detail than you wish to see each month. The business will know how much the electric, water,phone, internet and gas bills were each. The business owner can see a “utilities” expense accumulating these charges without the unnecessary details. Should a question about a particular category come up, the back up detail is there for analysis. Let your accountant set up categories of expenses that make sense and provide you a quick snapshot of the financial health of your business at any time.