The Value of A Cashflow Forecast

An all too common story

Have you ever experienced that moment when you realise there isn’t enough cash to meet the wages bill at the end of the month?

Have you ever had that unexpected phone call from your bank manager to say you’ve exceeded your borrowing limits?

Have you ever looked at your year-end financial statements and been surprised; the profit for the year was nothing like you expected?

Those unexpected moments can have dire consequences on cash flow and the viability of the business.  Very often this can arise despite sales growth going as planned.  For example, doubling sales over a 12-month period where accounts receivable terms are more relaxed than when a business pays its suppliers can lead to major cash shortages; and sometimes going out of business.

If only you had a crystal ball to look into the future, you could take corrective action to avoid those problems.  That’s what a comprehensive financial forecast will do for your business.  In fact it will do much more…

Getting the focus back

You have goals, targets and plans for your business.  But have you broken that down to a monthly plan and forecast?  Do you know the impact your sales targets will have on your cash position?  Do you know what additional resources you will need to support your sales plans?  How will that impact on cash?  Will you need additional finance?

It’s tough sometimes to figure out why the profits are not what you expected them to be, or why some costs are so much higher than you thought they would be.

So, what we do is prepare a business forecast that projects ahead across future periods so you have your goals clearly in mind every day and measure progress along the way.

This is how you benefit from financial forecasting

  • You will identify the financial viability of your future plans, including the launch of a new product or venture.
  • You will identify periods where you may experience cash shortages allowing you to take corrective action.
  • You can look at different scenarios and see the impact on cash.  For example, the impact on your cash position if sales outperform expectations.
  • You can carry out breakeven analysis to identify the minimum level of sales you need to make each month to survive.
  • A financial forecast can be updated regularly to reflect changing circumstances and help keep you on track to achieve your goals, targets and plans.
  • Improved cost control because you will always know what you should be spending.
  • By comparing actual results against forecast and analysing the reason behind variances helps you to understand better what is happening in the business.
  • If you are looking to secure funding for your business, up to date financial forecasts will help you get the money you need (in fact, often it is a condition of the lender).

How you benefit from our Quick Forecasting

Meeting to obtain your predicted data and build your model

We will have an initial meeting to understand how your business might perform over the period of the forecast, advise you on implications and build the model of your financial forecast.

Projection of likely cost increases

As your business grows your cost commitments will too. For example, when you need to employ more people, how much will that actually cost? When you need to move into larger offices or a new location, not only will the rent go up but what are the new business rates and other premises costs likely to be, such as the heat and lighting expenses? What will you need to spend on marketing?

We’ll talk you through all the possible expenditure increases and make sure we include them in the appropriate period as we map out your business journey.

Creation of your forecast

Using all the information we have from our discussions we will create a forecast showing income (sales), costs of sales, gross margin, employee and advertising expenses, overheads, operating profit, provision for tax and your resulting profits available for distribution.

You will be able to see a target or budget for each and every item, as well as overall numbers for each analysis field.

Detailed and graphical report showing the final results

We will present you with the numbers in a detailed way so you can see each anticipated revenue and cost item across the three years.

And, because we understand that lists of numbers are not always clear, we will also show you a graphical analysis of the key areas of the forecast, such as total revenue, gross margin and net profit.

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