Forecasting Tips

We’ve all been there. Sat in front of a blank Excel worksheet, wondering why we thought it was a good idea to create a financial forecast. At Clearview, we have extensive experience in forecasting, making us the perfect partner to help you with everything you need to think about when creating your forecast.

Financial forecasting and planning are essential processes that every business should undertake at least once a year. Setting budgets, allocating resources, and identifying future-goals are all made easier through these planning tools. In many organisations, financial planning is not given priority – mostly because it feels like a hassle.

Whether you are experienced or new to financial forecasting, there are 3 main tips that should be considered:

We’ve all been there. Sat in front of a blank Excel worksheet, wondering why we thought it was a good idea to create a financial forecast. At Clearview, we have extensive experience in forecasting, making us the perfect partner to help you with everything you need to think about when creating your forecast.

Financial forecasting and planning are essential processes that every business should undertake at least once a year. Setting budgets, allocating resources, and identifying future-goals are all made easier through these planning tools. In many organisations, financial planning is not given priority – mostly because it feels like a hassle.

Whether you are experienced or new to financial forecasting, there are 3 main tips that should be considered:

1. Be simple & realistic

When forecasting, it is critical to ensure that the projections you create are realistic and achievable. Particularly for smaller businesses and SMEs, projected growth can be difficult to determine accurately, however the figures should always be reachable. If projections are unrealistic, the company will gain no real value from creating the document as it will be an inaccurate representation of the business’s growth.

2. Begin with expenses / costs

Expenses / costs are often the most predictable area to look at when formulating a financial forecast. Fixed costs / expenses such as rent, utilities, wages, advertising, and marketing are normally the same, or similar, each month and are easily accessible, gathered and collected., Variable costs / expenses such as cost of good sold should be included within the sales section of the financial forecast and based on margins and quantities.

3. Include your staff

Other team members can have great insights into where the business is and where it wants to go. Sales staff can give detailed customer forecasts which can be summarised, marketing teams know when they need to focus funds on campaigns and administration staff can see where money needs to be spent, or can be saved, in the everyday function of the business. Everyone can help, no matter how small a contribution.

When creating your financial forecast, it is beneficial to add in as much information as possible. In particular, funders like to see a copy of this document, therefore the more questions you are able to answer the better!

The most important factor to note is that a forecast is just that – a forecast. Unless you can see into the future with your financial crystal ball, all the information you include is an estimate. The results of the forecast should help you plan the future, but things can change. If you can identify those areas that are most likely to change because you know how your forecast is made up, you’re better prepared to react and respond to the changes quickly as they arise.

The absolute minimum you need to include within your forecast is sales and costs. The more information you are able to add, the more realistic it will be. Ideal information to add:

1. Sales information

a. What you’re selling
b. How much you’re selling it for
c. How much it will cost you to sell it

2. Employees

a. Do you have anyone that you pay through payroll?
b. If so, how much do you pay them?
c. Are you planning to take any more staff on?
d. If you’re a shareholder, will you take a dividend?

3. Funding – a good forecast will help show any funding gaps

a. Do you have a bank loan or overdraft?
b. What about grants available?
c. Are you putting funds in yourself, (also known as capital or equity)?

4. Overheads

a. Do you have rent and rates to pay on current or future premises?
b. Insurance – check what you’re covered for and how much it costs
c. What about website fees, accountants, marketing?

5. Stock

a. Do you keep stock to support sales?
b. How much is that stock worth?
c. Is the stock level right to fulfil future sales?

6. Opening Balance Sheet – a snapshot at the start of the forecast

a. Has your business already completed a year end with a balance sheet as a guide?
b. How much will you be owed by customers and owe to suppliers, to estimate cash movements from these?

At Clearview we specialise in straightforward thinking to help and support your business. Our forecasting tool has been developed to guide you through and simplify the process resulting in integrated and professional financial forecasts for use in house or to send to external parties.