The lack of planning and control of cash resources is the reason often given for the failure of many small businesses in Australia. However, good forecasting can help reduce your business risk. Much like a map helps you plan a long road trip, a financial forecast (often called a cash budget, cash flow, or financial plan) helps you achieve your goals and get your business to where you want it to be. A financial forecast is a tool that allows you to use your resources where they're most needed, so you can control the cash flow of your business, instead of it controlling you. It allows you to control your money so you are more likely to achieve your desired net profit. What is a financial forecast?
A financial forecast is simply a financial plan or budget for your business. It is an estimate of two essential future financial outcomes for a business – your projected income and expenses. Create a cashflow forecast by adding income and expenses as they are due. You will then know exactly how much you need to make every month for a profitable business. A financial forecast is the best guess of what will happen to your business financially over a period of time. Usually, financial forecasts are an estimate of future income and expenses for a business over the next year and are used to develop the projections of profit and loss statements, balance sheets and, most critically, the cash flow forecast. Predicting the financial future of your business is not easy, especially if you are starting a business and do not have a trading history. Initially, your financial forecasts will be inexact and inaccurate. However, frequent forecasting with adjustments as required will promote more accurate forecasting. Back to top
Why prepare a financial forecast?
The financial forecast is critical to your business plan, especially if it is for the purpose of getting a bank loan. More importantly, you are an investor in your own business and you must have confidence...
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