What form of financial forecasting works best?
Financial forecasting is a way of predicting how well your business will do in the future. You can use the financial forecast to:
– Make an informed guess of how successful a new product launch could be
– Decide whether to take specific financial steps, such as hiring more employees, giving raises, or renting new office space
– Request financing from investors or bank loans.
There are two types of financial forecasting:
Qualitative, which collects the advice of experts to carry out a financial evaluation
Quantitative, which analyzes financial reports and past performance of your own company and that of competitors to provide a fact-based forecast.
When Quantitative Forecasting May Not Work
It might appear, at first glance, that quantitative financial forecasting is more accurate. But that is not always the case. For example, if you are a start-up company and you don’t have historical data, you won’t be able to make an accurate quantitative forecast. Approximately three years of data are required for an accurate financial forecast.
If you’re launching a product or service that’s vastly different from anything your company has done before, quantitative financial forecasting may not be accurate either.
Finally, in times of recession or economic downturn, financial forecasting methods can fail. However, using time series decomposition to adjust for trends and seasonality, as well as business cycles, can create more accurate financial forecasts.
Qualitative Forecast
Qualitative forecasting can be expensive, but it can provide more accurate results in some cases, including the above, or if you’re trying to forecast in rapidly changing fields, such as technology, or forecast more than two or three years into the future.
No type of financial forecasting is “simple,” but the benefits to your business far outweigh the expenses.[Afinancialforecastevenifinaccurateisstillbetterthanhavingnoinformationatall[Unpronósticofinancieroinclusosiesinexactoesmejorquenotenerningunainformación[Afinancialforecastevenifit’sinaccurateisstillbetterthanhavingnoinformationatall
A financial controller can help you choose the right type of financial forecast and organize it in such a way that you get the information you need to make the smartest decisions for the future of your business.
We’ve all heard that old phrase: “You can’t improve what you can’t measure.” Nowhere is this more relevant than when it comes to your company’s bottom line, cash flow and profitability. But how does a small business owner measure these things? And how do you know your measurements are accurate?
The answer lies in having the right business and accounting processes, along with the right person to control and manage these processes.
Here are some steps you can take and processes you can implement to measure and improve your company’s profitability.
1 – Keep the daily accounting up to date. – Daily accounting ensures Accounts Receivable invoices go out on time, so you can get paid in a timely manner, and Accounts Payable is paid in a timely manner to avoid interest charges, late fees, or Bounced check fees.
When your AP/AR runs like a well-oiled machine, you can save money on interest, late fees, and know you always have enough in the bank to cover expenses as they arise, whether it’s for new office equipment or to cover the payroll.
2 – “Close the books” monthly to detect any inaccuracies and ensure up-to-date financial records. – When your part-time outsourced bookkeeper balances and closes the books, you’ll know exactly where you stand financially and can take steps to improve. This monthly “reality check” is necessary to catch errors and also so that you can make course corrections as you steer the financial ship of your business.
3 – Review financial reports quarterly to get a snapshot of your company’s financial health and make financial forecasts as needed. – Quarterly cash flow reports, balance sheets, and profit and loss statements give you a clear view of how your business is doing and how it could improve. With the help of a part-time subcontracted bookkeeper and financial controller, you’ll receive quarterly updated reports and help analyze the information in these reports so you can take action that will benefit your business.
Financial forecasts may be needed quarterly, annually, or whenever your company is preparing to introduce a new product to the market.
These are just a few of the processes that an outsourced bookkeeping staff can perform to keep your business on the right financial track, improve profitability, and give you the peace of mind you need as a business owner.