Financial Forecasting

Throughout my consulting career I’ve learned that business owners do not like budgets. They perceive that budgets tell them what they should not spend, and I can’t disagree. So instead I  pivot the conversation to financial forecasting. What’s the difference?

Forecasting focuses on the future; what we expect during a fiscal year for revenue and expenses.  Then if the forecast is not on track, you make mid-course corrections. A good forecast should mimic the Profit & Loss (P&L) and Cashflow statements and can be created using Excel, or an affordable forecasting application.

The intent is to have the P&L forecast model the reality of your business. To do this, you will need at least three years of financial history by month. Given that history, you can model your revenue and expenses to account for any seasonal or other variations related to your business.

Once the P&L forecast is complete, you can turn your attention to the cash forecast. Simply take your forecast profits to estimate excess cash. This cash will be your war chest. It can be used for R&D, capital expenses, investments, reserves, and the all-important shareholder dividend.

When forecasting, be sure to create best case, worst case and expected case scenarios. Our clients who take this extra step are better able to navigate through crises like the financial crisis of 2008 and Covid crisis of 2020.

If you need help with your financial forecasting, give us a call; we’ve been creating client forecasts for over twenty years.