Business forecasting 101

21st November, 2016

Easy guide to forecasting your cash flow - blog

For longevity in small business, you must plan for the future.

Forecasting requires you to look into the crystal ball to see where you will be in one year’s time, five year’s time — and even 10 year’s time using the sales data you have to date.

This is held in your Point of Sale and accounting software.

Sounds simple enough, but how do you go about it? Here’s a ‘Business Forecasting 101’ to help you on your way.

Sales forecasting

As a business owner you need to identify trends and monitor your business’ performance.

You may have a gut feel for what the trends are, but there is nothing better than having hard data to back up this gut feel.

By using the data already held in your Point of Sale software, you can accurately predict the sales trends for next week — or month — even for the entire year ahead.

Identifying these trends will allow you to better staff your business and hold optimum stock levels to meet the sales trends in your business.

Financial forecasting

Looking deep into the data in your accounting software will allow you to forecast the future financial performance of your business – if you meet certain key performance indicators (KPIs).

Continuous monitoring of these KPIs gives you peace of mind that your business is on track to realise the profit you dream of.

To accurately forecast the financial performance of your business, you need to analyse your financial performance to date to identify profit margins and fine-tune your pricing structure.

Cash flow forecasting

Cash flow forecasting is essential for any small business and easy to do.

Running the Statement of Cash Flow report is a simple and quick way to see how your bank balance will look into next week, next month — even next year.

It takes all your entered supplier invoices with their due date, along with your sales invoices and the dates they are due.

It also inputs your regular monthly payments such as loan repayments and puts them all nicely into a report that will show you the peaks and troughs you are likely to experience in your bank account.

Knowing where the shortfalls will be in advance is particularly helpful for you to manage your business and run sales promotions to coincide with these troughs to boost your cash flow.

READ MORE: Cash flow statements: preparation, examples and a template

Budgeting forecasting

Budgeting is the most common form of forecasting.

Using your last year’s Profit and Loss Report to plan for the coming year is the tried and true way of creating a budget.

Identifying your actual KPIs and improving them by just 1 percent will always lead to an increase in profit.

In fact, if you increase your sales by one percent and reduce both your labour and cost of goods sold by one percent, then you can expect a 25 percent increase in your bottom line profit.

Identifying the goals and targets for your team to meet in the coming period is the end result of a good budget forecasting session.

READ MORE: Budget vs. Forecast: What’s The Difference?

The good news for MYOB users is that there are a multitude of add-on software options that enable you to do this forecasting quickly and easily.

The upside of forecasting is that you make better management decisions and run a more profitable business.

So go ahead, try forecasting and using your software to its optimum, and see how your business will be in one year, five years — even 10 years down the track.

Proper planning prevents poor performance and stops the crystal ball gazing to decide your future.

For more cash flow management tips, download our free ebook by clicking here