Make sure your financial forecasting is accurate by applying these three rules
Rule 1: Make sure your forecasting is realistic
According to startup.co.uk, the first rule of financial forecasting is to be 100% realistic. It's better to even be a little bit on the pessimistic side.
To make sure you do this, look at your average figures for the past three years. If you, for example, see your average growth for those years stayed at 12%. It will be unrealistic to suddenly expect a 50% growth increase this year.
Your past experience is the best indicator of what you will experience in the future.
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Ten budget templates to forecast and manage your company's costs
You can use them individually or while you create your operating budget. You'll draw figures from these budgets so you can keep control of costs and maximise profit. Each budget chapter comes with a free Excel budget template for you to customise and use straight away.
Rule 2: Be clear about what is and isn't income
Remember, an invoice for something isn't payment. Only when you actually have the client's money in your account, can you include it as income.
This is important because you may end up spending money that's not in your bank account.
And this could cripple you if it becomes an irrecoverable debt.
Rule 3: Include everything in your forecasting
You need to check your forecasts include every possible income and expense. If you don't, something you didn't account for could throw off your predictions.
If, for example, you don't include experiences like maintenance for your equipment and a piece of equipment breaks down, you'll need to repair it. Since you didn't include this in your forecasting, you might not have the money to cover this expense.
Accurate forecasting is the key to successful budgeting and financial planning. To make sure it really is accurate, you can't just do your forecasting and leave it.
You need to periodically review your forecasting and financial plan advises investopedia.co.za. This way you can see if your predictions are on the right track and make changes where necessary.
Doing this is the only way to ensure your finances never end up in the red.
PS. The templates in the Master Budget Series
will help you make sure your financial forecasting is always effective and your budgets are user-friendly. Get a copy of it today.