In this climate of uncertainty where the state budget has still not been finalized at the start of the year, it perhaps seems unrealistic to make financial forecasts which could be disrupted by a government decision. However, the entrepreneur must consider all scenarios.
Financial forecasts can sometimes seem utopian. Sometimes we wonder if reality is really taken into account when calculating these figures. As a business leader or manager, you ask yourself the question of what are the ideal ways to make these financial forecasts close to reality and how not to go astray? How can we avoid any discrepancies between forecasts and future reality? Some advice.
1. Make objective forecasts
To avoid any wasted initiative, take the time to clearly define the scope of your forecasts and the real purpose of your expectations. What type of forecast do you want to obtain: short term? Long term? The more precise your forecasts are and relate to objective data, the more banks (or other investors) will be able to support you in your project if necessary.
2. Imagine all possible scenarios
Then, and still as part of the preparation of your financial forecasts, it is very important to take into account the multiplicity of possible scenarios. Let’s take the example of a forecast for your company’s sales. It is quite possible that your activity will not vary in any way, or that an event will turn everything upside down. In order to anticipate these sudden changes that may occur in the management of your business, do not hesitate to consider them or at least imagine them when making your forecasts. This is why the key word in this case is to anticipate. Moreover, financial forecasts leave nothing to chance or improvisation. Finally, you should always consider an unforeseen situation that requires you to weather a storm and how you will sail in high winds.
3. Find all relevant data
Once all the scenarios have been carefully and seriously considered, the time comes to define all the data you already have. If your financial forecast is for next year’s sales, find all the numbers relating to your company’s current sales. Do not take the risk of spreading yourself too thin and complicating your task by taking into account figures that are unnecessary for your forecast. A good financial forecast is based on expertly calculated, precise and rigorous data.
To find all these figures, do not hesitate to search in your company’s internal documents, but also with the help of external sources (competition, customers). Specialized companies can carry out this research (customer survey, competition study) for you and at a lower cost, which can be very useful.
4. Use the right tools
Today, many efficient and easy-to-use tools are available on the market. A spreadsheet may perfectly meet your needs, but be aware that many software programs dedicated to financial forecasting allow you to perform all possible calculations without difficulty. In order to carry out your forecast, it is essential to choose the relevant tools. Financial forecasting firms also exist, but the services remain quite expensive. The more efficient and qualitative your tools are, the more likely you will be to obtain financial forecasts close to business reality.
5. Analyze all your processes
Whether it concerns production processes, manufacturing or any other type of process that is part of the management of your activity, also take the time to break them down carefully, to clearly define the different tasks that come into account in these patterns and their consequences and impacts. This step will allow you to obtain increased knowledge of your business, which is never useless in aligning your financial forecasts with market reality.
6. Update your data for realistic forecasts
And so that all these steps are not carried out in vain, take the time to update all the available data and compare it with other companies in your sector in order to have an initial perspective on your activity. It is only by placing your company’s current data in a global context that you will be able to establish forecasts in line with the reality inherent to your company’s activity. As you know, innovations continue to disrupt the business world. You must never hide this reality to enable yourself to be competitive.
