Matching a good step-by-step guide with a set of best practices helps get things right. So here are some tips when following steps to financial forecasting that will ensure better results.
Tips to Maximize Your Financial Forecasting Plan
Track where capital will come from
On many occasions, starting a business will require capital. Some might require a small capital while others might need more. What matters most is that we’re clear about how much capital is needed to launch and where the capital will come from.
77% of business owners rely on personal funds as capital for a business. Others rely on funding. Keep a detailed track of how much money has gone into the business so it’s easier to determine whether the business has generated a return of investment or not. If you’re considering getting investors to start or scale a business, having this record will be the bare minimum.
Determine who will do the books
On top of knowing what to track, a business startup also needs to be clear about who will track financials and keep a record of the forecasts. If a company seeks to outsource this, it’s best to look for professionals who have done it in the past. Consider hiring an accountant or bookkeeper. If you, as the business owner, want to create your own forecasts and keep track, you can get training for it online. There are various certificate programs for accounting online to choose from.
Revisit your plan regularly
A plan isn’t there for show. You will need to revisit your forecasts regularly and track your business’ performance over time. Mark a time in your calendar to revisit your forecasts and evaluate your business’ performance. When it isn’t meeting the mark or even surpasses it, make necessary adjustments to create more realistic predictions of how your business will do financially in the future. Set a quarterly review at the minimum and monthly at the most.
Keep a flexible budget for your business
When budgeting and planning a business startup, no one truly knows what those numbers will be specifically. Prices of production go up, salaries can change, and there will be deadweight loss every now and then. Be flexible with your budget and set as much buffer budget as you can. The rule of thumb is to be generous with your expenses and thrifty on your income. This practice helps you calculate risks better, something that will always abound in entrepreneurship.
Set up an expense management structure
Managing your expenses will require some form of structure to avoid any discrepancies. An absence of structure will only lead to more financial stress and errors in the future. So the earlier you can finalize an expense management structure, the better. Keep track of all expenses and file your receipts or proofs of expenses. The same goes for income.
In most cases, you can depend on invoicing and accounting software to help automate parts of the expense management process so that it doesn’t take out too much of your valuable time as the business owner.
Business Growth and Multiple Income Streams
Business is a great way to get ahead financially. But not all business owners become financially free. The key is to create multiple income streams and not depend on one. 65% of millionaires have three income streams. Think of other ways that your business can earn— like diverse product lines or other complementary services. Consider starting multiple businesses if your time allows for it or keep a day job during the earlier stages. These smart moves can become a make-or-break decision for your future empire.