How to use Forecasts and Scenario-Planning
For many years, accounting has focused heavily on looking backwards.
Your financial statements tell you what happened last month, last quarter or last year. That information is important, but on its own it only tells part of the story.
If you want to make better decisions about where your business is heading, you also need to look forward.
That’s where forecasting comes in.
Forecasting gives you a clearer view of what’s ahead
A good forecast can help you understand what your sales, cashflow, costs and profits may look like in the months ahead.
Instead of waiting for a problem to show up in your accounts after the fact, forecasting can help you spot it earlier and do something about it.
It can also help you identify opportunities and make decisions with more confidence.
We often describe it like this:
Your historic accounts are the rear-view mirror. Forecasting is the satnav.
You need both, but if you are trying to work out where you are going next, you need to be able to see the road ahead.
What can forecasting help with?
Forecasting can be useful across many areas of your business.
Spot patterns before they become problems
Using your historic financial information, forecasting can help identify trends and patterns in your business.
That might include seasonal slow periods, increasing costs, pressure on cashflow or changes in sales.
If you can see those issues coming, you have more time to prepare and respond.
Test different “What if?” scenarios
Business owners make big decisions all the time.
You might be asking:
What if we employ another person?
What if sales drop?
What if we increase our prices?
Can we afford new equipment?
What happens if supplier costs keep increasing?
How much revenue do we need to achieve our profit target?
Forecasting lets you model different scenarios before you make the decision.
That means you can compare different options and get a clearer idea of the likely financial impact.
Make better business decisions
Gut feel will always have a place in business, especially when you know your industry well.
But having solid financial information behind your decisions gives you another layer of confidence.
Forecasting brings together your actual results with realistic expectations for the future, helping you make decisions based on the bigger picture rather than one set of historic numbers.
Keep a closer eye on cashflow
Profit is important, but cashflow is what keeps the business moving.
Forecasting can help identify when cash may be tight, when larger payments are coming up or when the business may need additional funding.
Knowing that early gives you more options.
Have better conversations with your accountant
Forecasting also helps us understand your business in more detail.
Rather than only talking about what happened last year, we can have more useful conversations about where the business is heading, what you want to achieve and what might get in the way.
That allows us to work with you more proactively and provide advice that is relevant to what is happening in your business now.
Accounting should be about more than the past
At Cross Group, we believe your numbers should help you make decisions, not simply meet reporting requirements.
We want to help business owners understand what their financial information is telling them and use it to plan with more confidence.
Forecasting can give you a clearer picture of what the next 6, 12 or 24 months might look like, helping you prepare for challenges and make the most of opportunities.
If you would like a clearer view of where your business is heading, talk to the Cross Group team about forecasting and business planning.
Let’s look beyond the numbers and start planning what comes next.