How to Leverage Financial Forecasting and Decision-Making for Your Business
Financial forecasting and decision-making can unlock your most exciting goals. But it’s easy to feel overwhelmed with the countless opportunities and approaches available.
Don’t let financial forecasting and decision-making give you more stress - they are tools to make your life easier. Let’s explore some insights to make the process more accessible.
The Problem With Financial Forecasting and Decision-Making Using Traditional Tax & Accounting Firms
Traditional accounting firms often focus solely on past financial data, neglecting the potential for future opportunities. This “historic” work is important, but shouldn’t come at the cost of improving your tax & financial picture for the future. Approaches that only focus on backward-looking financials leave businesses ill-prepared for upcoming challenges and opportunities.
Example: Imagine a small company that relies on a traditional accounting firm. Despite steady revenue growth, the company fails to use forecasting to anticipate upcoming tax changes that significantly impact the company's profitability. Market trends on the horizon also weren’t considered during the accounting process, and opportunities for growth and expansion were completely missed.
The Solution: Start With Goals
Working with vague ideas of what you want to achieve won’t help you take full advantage of financial forecasting and decision-making. It’s important to clarify your goals. Ask yourself questions such as:
What do I want to achieve in my life and business in the next year, five years, and beyond?
What would my definition of success look like for my business, both financially and operationally?
What resources, whether financial, human, or technological, do I need to achieve my goals?
Have I tried setting business goals in the past? What worked, what didn’t work, and why?
Decide on Your Indicators
Once your goals are set, identify the key indicators that will measure your progress.
Your indicators are not set in stone!
Regularly revisiting and deciding which indicators are the most relevant to your goals is strongly encouraged. Make adjustments along the way as you track your performance.
KPIs for Financial Forecasting and Decision-Making
Your Key Performance Indicators (KPIs) which help gauge success towards your goals could include:
Cash flow: Is there enough money coming in to cover expenses and maintain operations?
Profit margins: Are we making enough profit on our products or services to sustain and grow the business?
Customer satisfaction: Are our customers happy with the products or services we provide?
Sales growth: Are we seeing an increase in sales over time?
Inventory turnover: Are we managing our inventory efficiently and avoiding excess or shortages?
Debt-to-income ratio: Are we managing our debt responsibly in relation to our income?
Business expansion: Are we growing our business into new markets or segments?
Accounts receivable: Are we effectively managing the money owed to us by customers?
Threats in Financial Forecasting and Decision-Making
While it may seem intimidating to consider what can go wrong in your business, it’s an important step that will help you rest easier at night. If you haven’t considered the most likely and impactful scenarios, you won’t be able to prepare.
Uncover Threats
You’ll be able to uncover many potential threats in your financial forecasting and decision-making if you carry out the following:
Conduct regular market research to stay informed about industry trends and competitor activities.
Analyze customer feedback and complaints to identify potential areas of improvement.
Monitor regulatory changes and compliance requirements relevant to your business.
Assess potential risks related to cybersecurity, data breaches, or information security.
Evaluate economic factors such as inflation, interest rates, and currency fluctuations that may impact your business.
Review your supply chain for vulnerabilities and diversify suppliers where possible.
Stay updated on emerging technologies and innovations that could disrupt your industry.
Conduct risk assessments to identify internal weaknesses or operational vulnerabilities.
Neutralize Threats
Now comes the part that sets you apart from many other small business owners - putting plans in place to neutralize the greatest and/or most likely threats.
Invest in insurance coverage to mitigate financial losses from unexpected events.
Diversify revenue streams to reduce dependence on a single product or market.
Train employees on security best practices and create awareness around potential threats.
Implement robust cybersecurity measures, such as firewalls, encryption, backups, and intrusion detection systems.
Build strong relationships with suppliers and partners to ensure continuity in the supply chain.
Engage legal counsel to navigate regulatory compliance requirements and mitigate legal risks.
Continuously monitor and reassess threats to adapt strategies and stay ahead of potential risks.
Create an Action Plan
With your goals defined and threats identified, it's time to create an actionable plan to turn your vision into reality. Work with your team or financial advisors to develop a roadmap with clear priorities and timelines.
Example: Imagine a freelance graphic designer looking to transition into full-time entrepreneurship. Their action plan might include steps such as building a diverse client portfolio, setting up a streamlined invoicing system, and investing in marketing efforts to attract new clients.
Work with Experts in Financial Forecasting and Decision-Making
You don't have to navigate the world of financial forecasting and decision-making alone. Working with experts who have systems in place to support you saves time and money.
Accounting Made Accessible can make your process a breeze. We’ll work with you to clarify your goals, decide on indicators, discover and neutralize threats, and implement an action plan. We won’t just stick around for tax time, we’re your reliable supporters year-round.
Book a free call with us and see how we can help make your goals come true.