Posted 02/15/2021

How Financial Forecasting Can Help Boost Your Business This FYE

How Financial Forecasting Can Help Boost Your Business This FYE

 Financial forecasting is the process of estimating the future financial position of the business. The purpose of this, according to Tech Funnel  is to estimate future revenue and expenses.

Most importantly, Phumlani Nkontwana, programme manager of Enterprise Development Academy (EDA) at GIBS Business School (Gordon Institute of Business Science) in article on SME South Africa, explains financial forecasting is an attempt to predict how changes in the micro (company) and macro environment (market, industry, legislative, etc.) will affect revenue, cost levers and ultimately the bottom line in the next financial year or season. It further allows your financial department to draw up realistic and feasible goals for the business.

Creating financial projections is important for any business as it can help prepare for unforeseen events, and according to Oracle Netsuite, this can help business leaders to make informed decisions. This can come in handy when seeking investors or applying for a business loan.

The two most important financial projections businesses should have are sales projection and expense projection.

1. Sales forecast 

The sales forecast takes into account how much sales you hope to generate in the upcoming year. It is possible to forecast sales for the next 3-4 years and measure how to achieve this goal.

2. Expense budget 

When drawing up an expense budget, businesses need to take into account their fixed costs such as rent and electricity. You need to take into consideration any future expenses that the business may incur such as buying equipment, or furniture etc. It is important that businesses allocate money for any unforeseen expenses that may arise.  

Financial Statements to include when making financial projections

  1. Income Statement

The Income Statement  provides details of the company’s earnings and any expenses incurred during the operation period. Wolters Kluwer explains that the income statement gives a clear view of monthly expenses and revenue. 

  1. Balance Sheet

The Balance Sheet, sometimes referred to as a statement of financial position, gives an overview of what the company is worth. According to Wolters Kluwer, a balance sheet is divided into three categories: assets, liabilities and shareholders equity. Ideally in your balance sheet, the assets will equal the sum of liabilities and equities.  

  1. Cash Flow statement 

Cash Flow Statements offer an overview of all cash that has flowed in and out of the business. According to Wolters Kluwer, the cash flow statement measures the amount of cash the company has on hand. 

How to create financial projections

Intuit Quickbooks highlights key steps needed to make financial projections for your business:

  • Use your own industry knowledge. You can use your own knowledge and expertise to predict the future financial position of your business. 

  • Work with an accountant who knows your industry. Working with an accountant who knows your industry and can predict sales and expenses your business can expect.

Find an accountant

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