Predicting the future may be impossible, but for business owners, making projections on sales, expenses, and revenue is crucial to the continued operation and growth of a business. This method of strategic planning enables companies to know where they are, where they want to be, and how they’ll get there. In fact, when completed accurately, revenue forecasting can be used to make sound decisions in areas ranging from purchases and staffing to sales and marketing.
What is Revenue Forecasting?
Simply put, revenue forecasting is a method used by business owners and financial analysts to predict the future of the company’s economic success over a short or long-term period using financial data from previous years, market trends, and other facts.
Why You Need to Start Forecasting
So, how does collecting and assessing financial data and making projections benefit your business? Below are just a few advantages to revenue forecasting.
Brings In New Investors
Whether you’re an entrepreneur looking for funding for your startup or a small business owner that’s been operating for years, accurately recording projects for sales and profits can attract investors to launch new products or services from your business, such as delivery in times of a pandemic. Wise investors look to back organizations that show promise of being successful in the future. A detailed account of your sales, the market trends, and your predictions for future sales can convince investors that your business is worth it.
Better Cash Flow Management
With the use of revenue forecasting and planning software for accurate projections, businesses can manage cash flow more efficiently. Armed with a detailed picture of your finances over a period of time can give you insight on when your high and low periods are. This essentially makes it easier for businesses to set funds aside for upcoming bills, schedule payments, and avoid missing payments and accumulating late fees for improved credit and reduced debt.
Hiring employees is an expense that can drain a company’s budget if it hasn’t been properly considered. Fortunately, revenue forecasting can help you make a more informed decision including when the best time to hire more staff is, when you can afford to pay them, and even how much your revenue could increase once they’re hired.
Keeping up with inventory is essential to customer satisfaction. Not having the products your customers want in-stock could result in lost sales. On the contrary, having an inventory of products that aren’t really selling could also have a negative financial impact. Fortunately, accurate revenue forecasting can give you insight on not only how much money you’re making but which products are doing the best. This way, you can make the necessary adjustments to your inventory to improve customer satisfaction and sales while reducing debt.
Prepare for Downtimes
Revenue forecasting isn’t only for predicting the growth of your business, it can also be ideal for helping you to create a plan for downtimes. As you dig deep into your financial data, you’re able to see when things tend to slow down and when things pick up. During the downtimes, you can cultivate ideas to try and bring those numbers up or hunker down on your finances to tide you over until things pick back up.
Securing a Loan
Borrowing funds to manage a company is fairly common. Securing a loan can be ideal for your credit and help you to further invest in your business. That is, of course, if you’ve properly planned. By using data from your financial forecast, you can discern when you need a loan and how much you can afford to repay without going deeper into debt. Another thing worth pointing out is that many lenders often ask businesses for a financial forecast to discern your creditworthiness and ability to repay the loan in full.
Last, but not least, using financial forecasting when setting company goals can make them easier to accomplish like benchmarks for customer retention or a quarter by quarter growth rate. You have a detailed record of where you are and where you hope to be in the future. This information can be used to not only set goals but to measure your progress and determine whether you need to make changes to accomplish them.
Whether it’s new computers for your staff, general office supplies, new software, or a larger commercial property for your growing business, accurate financial forecasting can help you decide if the investment is a wise one, how much you can afford, and when you can afford to make the purchase.
Hopefully, it’s clear by now how important revenue forecasting is for your business. It is not only a strategy that helps with budgeting, when done correctly it can be instrumental in helping you to make informed decisions and strategically plan for the success and growth of your business. Whether you’re an entrepreneur, a small business owner, or a CEO at a Fortune 500 company, revenue forecasting could be the very thing to take your brand to the next level.