Fact or Fiction? Are Financial Forecasts worth the paper they’re written on?

The usefulness of your Financial Forecast very much depends on how regularly you adjust the forecast figures against actual figures AND then amend your Financial Forecast accordingly. They should act as a real-time benchmark for the growth and financial health of your business and let you know if you are on track for the business to reach its goals.

Colleagues working together with calculator and spreadsheets

Financial Forecasts are, by their very existence, a changeable feast. Originally compiled based on historic trends, future knowledge, and some hopes and aspirations a forecast will never be an accurate document for the entirety of its lifespan.  Things change.  Sales may go up or down.  Suppliers may come and go.  Brexit may or may not happen.  Financial Forecasts create a clear path to achieve your goals, but there are many influences, some out of our control, that can affect the financial position of a business. By having a Financial Forecast in place the business has a ‘statement’ of where it wants to be and how it thinks it’s going to get there which can then dictate changes in strategy if the forecast is not going as planned.

Most companies at some point wish to raise capital and a Financial Forecast creates trust and confidence when approaching lenders to raise these funds. Financiers are looking for a company that knows exactly how it’s going to succeed and your Financial Forecast will lay down your plans.

A Financial Forecast should also tell you what resources you need and when you need them.  This could be a short term loan to cover cash-flow issues, or more staff to fulfil production needs and therefore more cash to pay them – a great forecast will tell you all this.  The business will benefit a great deal with a clear idea of the ‘how’ and the ‘when’.

Here's a Financial Forecast Tip from Preferred CFO “Be flexible. Planning the future is different from predicting it. Forecasts are meant to be a living document to regularly compare with actuals to ensure your goals are on track.”

So when putting together your Financial Forecast take into consideration the following factors:

  • seasonal trends (you can gain an insight into these by looking at previous years’ figures)
  • known new sales - bulk orders or contracts
  • known contracts coming to an end
  • Government legislation due to come into force (eg rise in taxes)
  • annual percentage increase (or decrease) in profit / sales (again look back at previous years for an average trend)

and finally

  • your own ‘feel’ for the business and how things are going generally.

Overall, be honest with yourself and if you think the business is slowing down don’t escalate your forecast figures to make them ‘look good’.  It’s the business that will suffer in the long term if forecasts are way off actual trading and without comparing and adjusting on a regular (monthly) basis it could be too late to turn things around.

So, in essence, yes Financial Forecasts are not only useful, but are a must, as long as you compile the figures using intelligence and ensure you continually refer back to them and adjust the figures if your intelligence was slightly off track.

If the Lamberts' Accounts Department can help by providing copies of statements for last year to assist with your projections for the coming years please let us know accounts@lamberts.co.uk  And if your Forecast is telling you that you're coming up to a busy period please contact our sales team 00330 535598 or visit our website to ensure you have all the supplies you need.

Louise Henry
Company Accountant