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in isolation you are effectively basing todays decisions, which impact the future of the business on past decisions, on outdated data.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.  Provides a roadmap: One of the primary benefits of financial forecasting is that it provides a clear certain direction for your business. By forecasting your expected revenue, expenses, and profits, you can set goals and targets for your business, and track your progress over time. This is important fro growth. This can help to keep you motivated, as you have a clear idea of where you are headed and what you need to do to get there.
   Identifies opportunities for growth: Financial forecasts can also help you to identify opportunities for growth and expansion. By forecasting your revenue and profits, you can identify areas where you may be able to invest in your business and increase your sales. This can be a powerful motivator, as you can see the potential for growth and success in your business.
   Helps with risk management: Finally, financial forecasts can also help you to manage risk in your business. By forecasting your expenses and revenue, you can identify potential risks and challenges that may arise, and take steps to mitigate them. This can help to reduce stress and anxiety around the unknowns in your business, and keep you motivated and focused on your goals.

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.

   Identifies areas for improvement: Financial forecasting can help you to identify areas where your business may be falling short compared to industry benchmarks or competitors. By comparing your forecasted revenue and profits to industry averages, you can identify areas where you may need to improve your performance. This can be a powerful motivator for making changes and improvements to your business. By constantly comparing and staying ahead in comparisons your e-commerce store can project the future expenses and sale. This will intern help with inventory, cash-flow and many more factors in your e-commerce store.
   Offers insights into market trends: Financial forecasting can also provide insights into market trends and changes. By comparing your forecasted revenue and profits to historical data and industry trends, you can identify shifts in the market, and adjust your strategy accordingly.

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.

   As an e-commerce business owner, you may find that recruitment is a significant challenge. It can be difficult to find and attract the right talent, particularly in a competitive market. Talent is important in any business especially a e-commerce store / business. However, financial forecasting can be an excellent tool for recruitment, as it can help you to demonstrate the potential for growth and success in your business. Here are three ways that financial forecasting can help with recruitment:

   Demonstrates financial stability: Financial forecasting can help you to demonstrate the financial stability of your business. By forecasting your revenue and profits, you can show potential employees that your business is financially sound, and that they can expect stability and security in their role.
   Offers potential for growth: Financial forecasting can also help you to showcase the potential for growth and expansion in your business. By forecasting your revenue and profits, you can show potential employees that there is room for growth and development within your company, and that they can be part of an exciting and dynamic team.
   Provides a clear roadmap: Finally, financial forecasting can provide a clear roadmap for your business, which can be a powerful tool for attracting top talent. By forecasting your expected revenue and profits, you can set clear goals and targets for your business, and demonstrate the potential for success.

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

UPDATED FOR 2023

Next Steps

Whichever way you decide to go, you can grow your e-commerce business swiftly and effectively. If you are looking for help in making the decision or have made it but need assistance scaling your business, get in touch with our team.

The best time to act is now.

hello@unicornaccounting.co.uk