Just one-quarter of all businesses last at least 15 years, and two of the main reasons for that are a lack of sufficient funding and insight into the company’s finances. Founder of Everest Business Funding, Scott Crockett, says that financial forecasting is an essential tool that all businesses should use to help them make informed decisions, which can lead to a more profitable and sustainable endeavor.
By harnessing the power of accurate financial forecasting, business owners can understand how to analyze trends, anticipate challenges, and plan for future growth.
Below are some reasons why financial forecasting is so important and how you can integrate it into your business.
Setting Realistic Goals
Financial forecasting allows business owners to get an accurate picture of what the future could look like. When done correctly and honestly, the process will help to identify potential areas of strength, areas of concern, and what might need to be done to grow the business.
Savvy business owners can then use this information to set realistic goals for the organization. Using actual data and accurate forecasting allows for objectives to be set that can be accomplished rather than just shooting for pie-in-the-sky hopes.
This often leads to more success, as the business can operate within a defined framework that’s based on these realistic expectations.
Managing Cash Flow
Revenue is great, but any experienced business owner will tell you that cash is what keeps the lights on. It’s important to understand that sales and cash flow are two different — but related — things.
Depending on the type of business, cash flow might trail sales. So, for example, just because you had a great month in sales doesn’t mean that your bank account will be flush with cash.
Understanding this concept and then being able to forecast your cash flow will help you invest at the right time. When businesses are able to project cash outflows and inflows accurately, they’ll be able to anticipate when they might have a deficit or surplus of cash, which can then guide their decision-making.
This information can be used to decide when a good time to invest in new equipment is, whether the business will have enough cash on hand to purchase inventory ahead of an expected peak in sales, or when to time a new marketing blitz.
Evaluating Performance
Scott Crockett says that businesses can accurately evaluate their performance through financial forecasting. They do this by comparing actual financial figures with what they had forecasted for that period of time.
By making this comparison, business owners will be able to more easily identify some things that might have gone right or wrong and what needs to be done to either continue this success or turn around the failures.
Today, there are many programs and technology tools that allow business owners to do these analyses in near real-time. This helps the business adapt to changing market conditions, make more informed decisions based on financial data, and, ultimately, drive success.
About Scott Crockett
Scott Crockett is the founder and CEO of Everest Business Funding. He is a seasoned professional with 20 years of experience in the finance industry. Mr. Crockett’s track record includes raising more than $250 million in capital and creating thousands of jobs. Scott has founded, built, and managed several finance companies in the consumer and commercial finance sectors.
