People often confuse forecasting as a plan of the business’s financial goals, but a budget is the financial goals and a forecast should be used as a tool to achieve the goals.
As a business owner it can be quite overwhelming to know where your business needs to be by the end of a financial period, but without factual numerical data to support the journey it’s often why businesses don’t achieve their targets.
Without a long-term financial plan broken down into converted/planned revenue and costs, and realising your shortfalls against revenue/profit it’s one of the most challenging aspects of running a business – the reason why you started the business was because you love what you do, but you probably didn’t anticipate you’ll spend the majority of the time worrying about the financials, and not actually doing what you love day-to-day.
Here are 4 of the main problems you will face as a business owner and how a forecast can help you to overcome them.
#1 Your long term goals feel like they are unrealistic
A financial forecast not only allows you to see exactly where you are at, but also plan for what needs to be done in order to achieve target. It takes your longer term vision and goals, and breaks them down into shorter-term more manageable milestones that you can put a plan in place to achieve. A budget sets the financial aims of the business, a forecast is what holds you accountable to those aims.
#2 There will be times where you feel like you’re alone
Owning a business can be a lonely place, the pressures of your personal financial situation, and a team who typically aren’t active in the financial goals of the business can leave you feeling overwhelmed and ‘putting on a brave face to those around you’.
Applying visibility to the team for the revenue goals of the business can share and alleviate the lonely place business owners tend to find themselves in and gives visibility to the team on exactly where the business needs to be. It turns the team into doers and also new business focused, and ensures the long term financial goals of the business, are also the day to day thoughts of the team.
A detailed Revenue forecast not only allows you to track against the targets, but gives the team responsibility in achieving it. It allows them to see confirmed Revenue and gives them a sense of importance in converting and expanding the pipeline.
#3 Your team don’t have the capacity for the extra revenue
So you’ve got your budgeted targets, and got your confirmed sales which are starting to correlate to one another over the financial year, but now what. The beauty of a Revenue forecast means, you can mirror the increased planned Revenue over a financial period to allow for any new hires needed. A revenue forecast, sits hand in hand with a capacity working for the current team, you should know exactly what revenue your team can achieve, and also any costs associated with that. A revenue forecast, is a great example of another tool that allows you to prior plan any new hires into the team, in order to deliver the level of revenue needed.
#4 Nothing feels like it’s going to plan. What now?
You are 6 months in, and like any business things have changed since you set your budget, 6-9 months ago. What now? You know you would ideally like to achieve the same Revenue or Profit or Profit Margin, but are unsure on how far away you are or how you get there. As a Budget is a fixed document, you’ll hear people having to re-budget typically this is achieve a different goal than originally planned.
The beauty of a finance forecast is its a live document, ingrained in the day to day running of the business, any changes should be documented in there as and when they happen, so there aren’t an nasty surprises. Any big change within the business can be properly accounted for in order to still achieving those financial strategic goals you set at the start of the financial year. It again allows peace of mind in the financial journey of the business by providing live, accurate data on where the business is currently at, and prepare for any shortfalls against target.