Every business uses some form of accounting software to track money going in and out of the business – in it’s simplest form. But that only shows you how you have performed in the past.
A wise person once said, “Don’t look behind you, you aren’t going that way.”
Forecasting software, on the other hand, will allow you to look into the future of your business to see: if you are profitable, your break-even point and to manage cash flow more proactively. Most importantly though, it will give you the information you need to make business decisions with complete confidence because you know what the outcome will be.
Here are another 7 ways forecasting software can improve your business:
Planning, planning, planning!
You will struggle to plan any major parts of your business activities if you don’t know how and when you are able to fund these plans. For example, if you want to launch a new product line; can you afford to do so long-term? Do you have cash flow in the business or will you need to raise additional funds? If so, how much? These questions are almost endless and only a reliable financial forecasting tool will be able to answer them.
Better decision making.
Hand in hand with planning comes decision making. Whether you are required to make reactive decisions about staffing, outsourcing partners or key financial decisions, you will need specific financial data at hand to make better decisions.
Clear growth strategy.
Looking to the future you want to see growth. Who doesn’t? But creating a growth strategy starts with your financial forecast. There are key questions you will need answers to when considering different growth options for your business.
Depending on the options, it’s essential to know the cash flow of your business and which financial factors can be modified. Understanding the impact of variables such as cash flow, break-even point and profit margin will point you in a clear direction for future growth.
Boost in investor confidence.
There will be a time in most businesses when an injection of cash or funding is required, normally to facilitate growth. As part of the application process, potential investors will want to see a robust and professional forecast to demonstrate your level of fiscal responsibility and the level of risk your investors will be taking.
Improved disaster management.
Potential disasters can occur in business, and for reasons beyond your control, such as: an economic downturn, change in employment legislation, tightened regulations, etc. However, unexpected changes don’t have to spell disaster for your company.
Use financial forecasting software to see which financial variables are affected and what it could mean for your business. There are likely a number of options you haven’t considered which could alleviate the pressure external factors have put on your business.
For example, negotiating more favorable payment terms to improve cash flow or a reducing staff hours could help you operate more efficiently in the short term, without negatively impacting production. Only a solid forecast will be able to illustrate your options in a crisis and how decisions can impact your future.
Accurate cash flow management.
It stands to reason, if you are looking at your finances on a day-to-day basis you will manage cash flow in a more efficient way. Forecasting tools will help you take a long view to see potential issues ahead of time.
This allows you to proactively put remedial actions in place. Looking at your forecast on a regular basis and making sure it is accurately maintained will ensure cash flow remains healthy.
Looking into the financial future of your business and making decisions based on forecasted data, is much better than guessing how things will play out. You can avoid recognizable dangers ahead of time. Future planning reduces risk considerably while increasing your chances of success and growth.
The caveat is this: an inaccurate, over-estimated or ill-maintained forecast will not help you avoid risk or help your business grow. Yet, if you take all of the points above into account, I’m sure you can see how your business can benefit from using professional forecasting software. Every small business should look for ways to better manage business and circumnavigate problems before they occur.
This article has been edited and condensed.
Lynsey J. Bowen, BA MSc is the Marketing Manager at FINANSCAPES, a cloud-based forecasting tool that provides professional, error-free forecasts to reduce the risk of start-ups and increase SME growth rate. FINANSCAPES was developed with more than 10 years experience working in start-up and SME finance. FINANSCAPES is the simplest, easiest way to forecast your profitability and cash flow. Connect with @finanscapes on Twitter.
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