3 benefits of financial forecasts

We’ve all watched Dragon’s Den and know how important it is to know the financial details of your business inside and out. You should expect to be grilled on sales, costs and profit levels for the previous month, quarter of year. But we will focus on financial forecasts of the business’ future growth.

This historic information to a business is very useful as you can pinpoint sales and profit trends providing you with very useful data to direct business decisions. However the main downfall of these figures is that they are backward-facing. By using only actual figures in isolation you are effectively basing todays decisions, which impact the future of the business on past decisions, on outdated data.

If you are not already preparing financial forecasts for your business, you should as it comes with a multitude of benefits, that can help flow down to the profit level.

Such benefits include:

  1. Motivation

    Financial forecasts can help to motivate sales teams as it gives a business and its workers a sense of direction and something to aim for. Without this, you are simply running a business without a roadmap simply hoping to get to the right destination. They are also able to be adjusted once you have monthly actual results. This means you can identify business trends and easily see the impact on the bottom line.

  2. Comparisons

    Once actual results are in for the month you are able to compare results to the forecast. If you’re not happy with the figures you can go back to your forecast and budget to see what cuts could be made, or sales targets made to get your business where it needs to be.

  3. Recruitment

    Your employees are the life blood of your business. Failing to recruit the right people at the right time can stall business growth. By having forecasts you can see the expected business performance for the year, this means you can perfectly time your recruitment to match demand.

Ultimately make sure you don’t rely on past business results to affect your future decisions, you might find yourself overly optimistic or somewhat pessimistic about what the future holds.