How to Build a Well Balanced Financial Forecast

businessmen doing financial forecasting

As an owner of a budding startup, you’re probably wearing all sorts of hats to cut costs. One of these hats is likely to be more suited to an accountant, but since you want to take on everything, this means that you’ll have to do your financial forecasting.

Yes, this is as difficult as you’ve probably imagined, but you could make the process simpler and more efficient with these basic guidelines.

Use the Right Tools

You will have to use some tools so that you could easily build and modify your financial forecasts. To start, you could use a simple spreadsheet, but you need to familiarize yourself with its specific functions such as how to use preset variables and formulas.

When you’ve obtained some history of costs and sales, consider trading in your spreadsheet for a more efficient software solution that would automate plenty of tasks for you, such as financial reporting so that you could build a more realistic budget specifically according to past trends.

Determine What Drives your Costs and Revenues

The best way to understand how your business is doing at any given time is to determine your cost and revenue drivers. These are units of activities that result in changes relating to your costs or revenues.

Cost drivers would enable to convert your services and products into smaller parts and set a price for each one of them. These would help you make better forecasts according to what you’ve learned about your cost and revenue drivers.

Update your Financial Forecasts Regularly

When updating your financial forecasts, you should base your adjustments on past trends and results. Although your initial projections might be overly pessimistic or optimistic, you will soon be gathering authentic information on your costs and sales, which you could then utilize for updating your initial assumptions on cost and revenue drivers.

Keep your Financial Forecasts Realistic, Simple, and Practical

Since you’re just starting out, try to keep things as simple as possible. Examine your core business operations to determine the best track to profitability. If you experience a hiccup, top CFO consultant service specialists suggest taking time to reevaluate your revenue and cost drivers to help you make sound decisions to increase your profitability.

Overall, your forecasts should help you make better business decisions. They must tell you how profitable or not your business is and what particular variables require changing so that your business could be more profitable. Don’t forget to pay close attention to your financial forecasts to gauge if you’re going too big or moving excessively fast.