When most business owners think about their finances normally a set of reports comes to mind, so their P&L, possibly their balance sheet, and maybe even a cash flow. However, these reports are generally looked at from a historical point of view, so what happened last month, last quarter, or even last year.
Whilst it is clearly important that we understand where we have been, we can’t change the past. What is far more beneficial is to know and understand what the future may look like, predict potential revenue in and costs out, and understand where the pinch points are.
By having a cashflow forecaster you can highlight where pinch points may occur and look at how to iron them out. You could look at extending terms with suppliers, and ask for small regular deposits from customers rather than irregular hit-and-miss payments being made to keep the wheels turning. A sad demonstration of this is that around 80% of small businesses fail due to poor cash flow.
Budgets and P&L, now these forecasts have historically been about cost saving, and to some degree, this is still true. As a business, you want to be profitable and as lean as possible, but by using the planning and forecasting method you can highlight your intentions, the reality of what then really happens, and then finally track the variance or the difference between the two. As always, the detail and knowledge that predicting and tracking gives you, allows you to then cut your cloth accordingly, to either trim further or invest more.
Sales budgets and forecasting allow the business owner to see what opportunities and actions are required for the next quarter/year ahead. For some businesses, this could be no more than an excel spreadsheet showing prospects that will close within each period and the expected sales figure that this would generate, for some this tool may need to be far more defined and scientific and may require the use of a CRM (customer relationship management) system to manage the amount of data.
If you would like to find out more about how you can effectively manage your finances within your business, contact emmacole@growthcoach.co.uk quoting GCBL03 for a free no obligation 90-minute business review and coaching session.
