One of the biggest challenges for small businesses is managing finances better and ensuring that a venture remains “in the black.”
66% of small businesses experience financial challenges. Up to 43% of that number say that paying for day-to-day expenses is a prominent issue. One of the best ways to proactively resolve any financial issues is to make financial forecasts so your business is better prepared for the upcoming challenges, changes and opportunities.
What is Financial Forecasting Software For?
Financial forecasting is the process of creating a detailed financial plan for upcoming expenses and forecasting potential revenue to get a better glimpse of how a business will perform financially for a certain period.
A lot of work goes into financial forecasting. Business owners need to see all possibilities, including the rising cost of materials, possible loss of sales, increasing manpower cost and demands, and so on.
When working on these forecasts, it helps to use forecasting software for business. The mass digitization of business functions, including accounting, marketing, customer service, and finance, is pushing businesses to more productive frontiers.
But how can financial forecasting and financial forecasting software add value to a small business? And is it worth the investment?
Let’s look at some important points to consider.
Benefits of Financial Forecasting
Before looking at specific benefits of forecasting software for small businesses, let us look at the benefits of financial forecasting as a practice on its own. Here are some of the benefits of performing financial forecasting as a business.
Understand How Your Business Works
Understanding the way a business works depends heavily on understanding how the financial aspects of the business will look once it enters operation or a new financial year. The old saying goes “money doesn’t make the world go ‘round,” but it does keep a business’s lights on. So making forecasts will give business owners a better idea of how small businesses will work and operate in real-case scenarios.
Prepare for Financial Challenges
An entrepreneur can hope for the best for his or her business. We can cross our fingers and wish people will endlessly walk through the door and that there won’t be any losses or unforeseen expenses. But all of that will be wishful thinking. Financial forecasting gives you a better glimpse of how your business can overcome the challenges of commerce so you can set strategies to bypass or resolve them accordingly.
Stress Test Your Business
Business is a game of resilience. Business owners and their teams must learn how to withstand the storm. What a financial forecast does is simulate problems like price increases, for example, to see how companies can respond. In the specific case of the rising cost of goods, stakeholders can see how those increases might affect the bottom line and see if a company can still stay afloat with such changes or adjust their pricing or other expenses to adjust.
Set Realistic Goals
Financial forecasting with ambitious planning is a great recipe for business success. These two practices could develop some conflict, but it will be a good conflict that draws out the best plans and strategies. With financial forecasting, we can be highly optimistic but with a dash of realistic expectations to ensure that the company takes calculated risks.
People don’t always talk about it the way we do talk about innovation and the hustle culture. But financial stewardship is a muscle that business owners should master if they want to have profitable and successful businesses. Financial forecasting is a great way to practice that trait and become a more responsible and effective entrepreneur.
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Benefits of Using Software for Financial Forecasting
Financial forecasting practices are great, but doing them manually with pen, paper, and calculators is no longer the most efficient way to do it. Gaining access to the best FP&A software will help provide an added boost to your financial forecasting and accounting activities. Here are some reasons why using a financial forecasting tool helps a business massively.
The best financial forecasting software will help add speed to the financial planning process. Outsourcing data crunching to computers, for one, remove any form of manual computing, which makes the whole forecasting process a lot faster.
Not only will financial forecasts be faster when done with software. They will also be more accurate. Outsourcing computations and presentations to software help minimize and eliminate any form of human error. Companies can avoid any financial ruin just because someone missed a decimal point or a zero. While there is still the added issue of errors in data entry, it’s a far shot from any errors a manual process might have generally speaking.
A financial forecasting software has ready systems in place to better organize data in a way that people will better grasp. This added plus helps keep businesses efficient and optimal as it removes any form of confusion when planning for a financial year or a business launch. These platforms also have great user dashboards and report generators that can make a financial forecast more simple and engaging so that everyone in the team who needs to see it can understand the forecasts and buy into the plan.
When busy business owners outsource highly administrative processes like accounting and financial forecasting, they’re able to save time and energy in the process. A lot of business owners have to manage invoices and receipts, balance books, and keep track of expenses themselves. With financial tools, they can delegate much of that work to technology so they wouldn’t have to burn the midnight oil crunching the numbers and spend more time on high-value tasks like sales, networking, and strategizing business development tactics.
Taking a look at an accounting software features list, one highly differentiating factor of having a digital system is being able to access a log history with ease. Keeping records in filing cabinets is a highly time and space-consuming practice. An accounting staff spends several hours just looking through files. With a digital system, business personnel can simply type a search query and have access to the files they need in a matter of seconds.
The last benefit of using software for the financial forecast is access, which is all the more available when using a cloud-based system. Because most financial forecasting and accounting systems are online, team members can readily access them no matter where they are. The future of financial accounting relies heavily on cloud-based software, and it makes better sense to ride that trend.
Of course, one would have to address cybersecurity issues, but following basic best practices to protect financial records will do more than protect one’s files. Plus, it’s no different with offline systems that people can break into and steal at any point either.
Only one-third of businesses will survive over ten years of operation. A big chunk of them will close because of cash flow issues. With financial forecasting, companies can better prepare for economic challenges, pivot as needed, and thrive even in the most unfavorable of business seasons.