When a new business begins, a lot of time and planning takes place in creating a business plan. One area to focus on is income forecasting. Based on your current finances when your business begins, you will need to think about how your income forecast will turn out in the next couple of months whether it is positive or negative. For new businesses, it’s especially common that the cash flow will be negative for the first couple of quarters while the business is still adjusting to any changes that need to be made to the business plan. To be able to use income forecasting to your advantage, here are a couple of technique tips for new businesses.
Take a Close Look at your Current Financial Situation and Create a Budget
Reach out for outside help such as hiring a Certified Public Accountant or another consultancy agent. They will be able to catch anything that you may have missed or can help you to create a strategy that will help you plan for the following quarters.
Be Organized by Holding onto Documents
A forecasting plan won’t last long if you are not organized. Those documents are your key to predicting how well your business’ forecast will turn out. Without an organized system, it will be hard to have a successful and secure financial plan.
Pay Close Attention
Keep a weekly, if not daily focus on your financial plans. Overtime you may find that your business falls into a pattern and if it’s disrupted, you will need to update or make any changes to get it back on track. By keeping track of your finances, you will be able to have the control you need to help with future forecasts. Without control of your finances, you will not be able to create a proper forecast.
Select a Forecasting Method
There are different methods to forecasting depending on what your business plan and future outlook for your business is. The indicator approach is a quantitative method that follows sales closely to keep track of any changes when everything else remains the same. The time series method can be combined with the indicator approach and will use past sales data (hence the importance of keeping past documents at all time) to predict future sales. The econometric method measures everything rather than focusing on one area of the business to predict the future financial outlook of a business.
Be Prepared for the Worst
Again, it is rare that businesses (especially new ones) always have positive forecasts. Have a sound plan and clear head to prepare for the worst case scenario for each forecast. When businesses begin, it’s common that a weekly and monthly forecast will be necessary to make sure everything is running smoothly. Especially if a business is experiencing rapid growth, or the opposite-falling apart, consistent forecasting will be necessary to decide what your next financial decisions will be.
Each industry will be unique as far as what their financial needs will be in order to run a successful business. When it comes to starting a new business, it cannot be said enough, but make sure you are prepared! Too many businesses begin without a proper business plan and are unaware of forecasting techniques that are necessary for success.
Kate Simmons is a freelance writer and online business blogger. Often, she looks to Domo for advice on the latest on business intelligence and forecasting.