A financial forecast is one of the most critical factors that determine the success or failure of a business. By having a sufficient financial forecast, not only can businesses better identify opportunities, manage their cash flow but also business risks can be reduced.
What is a Financial Forecast?
In short, a financial forecast is a financial plan which helps to illustrate a business's financial outcomes by estimating the projected income and projected expenses.
When anticipating the financial numbers, businesses often look at historical data, past and present performance, and other factors such as macroeconomic variables.
Predicting a financial future is not an easy task, especially for new businesses that have no or very little historical data and SMEs that don't have a CFO due to their limited budget. This is where CFO Rethink can help as we have extensive experience in Accounting, Finance, and Transformation. We strongly believe that we can help you to build a strong and achievable financial forecast.
Benefits of Having an Effective Financial Forecast
1. Allow businesses to have better control over cash flow
In the business world, we all know that "Cash is King". Cash is the most liquid asset compared to other forms of assets, such as stocks, bonds, or real estate. Having a sufficient amount of cash provides a company with more flexibility in terms of making business and investment decisions. Therefore, most businesses prefer to manage as much cash as possible. A financial forecast allows businesses to anticipate and allocate their cash flow effectively.
Managing cash flow is especially challenging for small businesses. They might have enough cash flow for a month and not enough of it for the next. Forecasting allows small companies to predict their cash flow and identify cash flow problems based on historical data. From there, they can channel their money in the right direction as well as find suitable approaches to minimize the impact when having cash flow problems in the future.
2. Measure financial performance
A financial forecast can act as a benchmark for businesses to measure the actual financial performance against. Having a periodic review of the financial plan allows businesses to keep track of their financial operation and make adjustments when necessary so that they can achieve their goals as planned.
3. Provide a strong validation for financial funding
A financial forecast is a valid proof that indicates a company's financial health and shows the direction that a business is headed in the future. At some certain points, companies will need to get funding from lenders or call for investment from potential investors for business operation and expansion. A well-thought-out financial forecast makes a company look more reliable and trustworthy to the lenders, which increases the possibility of the company yielding the fund
You would realize by now the importance of having an effective financial forecast for your business. Nevertheless, it is not easy to build a strong forecast as it requires a professional with extensive knowledge and experience in accounting and finance to build one. Hiring a CFO could be an option but it's usually over the budget for SMEs / start-ups. Also, you may not really expect to hire a CFO just to build a financial plan. We are here to help. A part-time CEO can surely add value to your firm. Have a chat with us on how we can support you in building your own powerful financial forecast at a reasonable cost.