Before you go ahead and get the low down on great business forecasting for small business owners you should have a solid understanding of what a business forecast is. Fortunately, most small business owners already do. This is because you need a business forecast to secure the kind of loan that most entrepreneurs take out when they first start their businesses. If this sounds like you, keep on reading to learn about four keyways to help improve your forecasting accuracy.
There’s no need to hire expensive professionals or invest in courses, software, or pricey infrastructure. You can boost your forecasting game simply by using your regular cloud-based business tools and looking at forecasting from a different perspective.
The name says it all. Forecasting allows you to draw an accurate prediction of the future direction of your business, the challenges it may face, the profit you will make and the expenses you will have to pay. A business forecast allows you to make decisions and plan using real data that yields realistic forecasts.
Many small business owners may find forecasting a daunting task. Fortunately, Kiwi small business owners have shown extraordinary levels of strength and resilience amidst COVID-19. Many have had to pivot quickly and make tough choices to survive and even thrive. They’ve shown that they can learn new skills to take their businesses in new directions. After the shocking and unexpected events of early 2020, Kiwi small business owners should find improving their skill and confidence through a variety of methods a walk in the park.
1. Take a step back
Once you’ve compiled your numbers, take a step backwards and have some fun with them. Run your numbers under a number of potential conditions. What if the market recovered quickly from the oncoming recession? What if the market dropped by 20 per cent? Run your numbers as if the costs of your raw materials had gone up, you had lost your best client, or your star employee. Paint a picture for yourself of the worst case scenario and sit on it for a week.
Then come back and look at it with fresh eyes. Your mind will have ticked through these scenarios and discarded your initial reactions. This additional step may take a little more of your time and energy but it will give you a more thorough understanding of your metrics. It will also help you make the right choices if an unexpected event comes up.
Small business owners that were able to evaluate their businesses from a more objective perspective have done a better job of surviving the economic shock of COVID-19. This year, NZ businesses have faced extremely difficult choices. Some have needed to cut down on their offerings, scale back their business, or even close their doors. These decisions can often be very hard to make and taking a step back definitely helps you to make the right decision. If you’ve shut your business, there’s no need to worry. When you want to get back into the SME landscape, BizCover is still delivering highly competitive business insurance packages.
2. P&L is just the start
Creating a P&L forecast is a great first step because it will give you a fair idea of your short-term financial outlook. The next step to ensure the financial resilience of your business is making a cash flow and a balance sheet and incorporating this into your forecasting process. This is called a three-way financial forecast and will give you a full view of your future financials, rather than the one slice provided by a forecast.
You can use several free or paid online tools to help with three-way forecasting. Unless you have a keen interest in finance or accounting you may find it difficult to fully wrap your head around the complexities of GST, debtors, creditors, capital expenditure, depreciation and table loan interest.
Don’t be shy about hiring an accountant or financial consultant to help you with your P&L forecasting. A reputable business coach may even be the ticket. These people have the expertise to ensure that your P&L forecast is done accurately and in a timely manner. As emphasised above, an element of objectivity can help you gain a realistic understanding of your business’s position.
3. Make sure that you are protected with Business Insurance
You can create an accurate three-way forecast for your business that predicts for most eventualities. However, the unexpected can and does happen. To ensure that your business can weather any storm you need to have up to date business insurance. You can compare business insurance quotes from multiple NZ insurers at BizCover New Zealand. There’s no hassle, no paperwork and no delays and policies are delivered to your inbox within minutes.