Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
Predicting the future of your business is no random fortune-telling with a pretty crystal ball. Instead, it requires lots of accurate data to envision the best possible results and apply effective methods to achieve them. In accounting, this is a crucial part of the whole process and is officially called forecasting.
Accounting forecasts use historical and current cost data to estimate and plan future costs and strategies. In the eCommerce sphere, this has become increasingly difficult with the rise of multiple online shopping platforms and social media marketing data.
Fortunately, there are appropriate accounting eCommerce practices that can help you take a realistic stab at what will happen to your sales and profits over the next year or so. This article will discuss some examples of forecasting practices and how they can help you plan for success.
Proper Accounting for Your Ecommerce Business: 7 Best Practices on Financial Forecasting
Financial forecasting is an accuracy tool. It helps you know where your business stands and which empty or incorrect areas should be filled and improved for growth. Moreover, it's very handy when coming up with critical company decisions, such as business expansion and hiring.
It has to be accurate, otherwise, there won't be much point in doing it. Plus, it can cause financial damage to your company and stockholders, and we don't want that to happen. To help you minimize and avoid financial risks, here are the seven best practices you can do for accurate and impactful financial forecasting.
#1: Plan at Least Two Sides of the Same Coin
Aiming for an optimistic future doesn't necessarily mean you only have to forecast the positive side of things. Instead, you should be aware of uncertain to worst-case business scenarios to forecast the best possible growth for your eCommerce business.
Try to use at least two or more forecasts: one with an optimistic point of view and another with a cautious or worst-case approach. We understand that it can be stressful to go over multiple estimates, but it's an ideal way of projecting realistic goals for your business.
#2: Be Particular About the Data Period
Time is a crucial factor in your forecasting data. Historical and current costs play a significant role in creating your financial projections. Therefore, ensure that you know the period of each data you collect to analyze it from a proper perspective.
If you're having difficulty organizing the data based on their time periods, it's time to level up your collecting system. For instance, use automated eCommerce accounting tools or hire a bookkeeping team to manage these details for you. That way, you won't have much trouble gathering them for forecasting.
#3: Find the Major Key Points that Can Turn the Tables
In each time period, there's always a strong and weak point that drives the results. To plan better strategies moving forward, determine which approach has the biggest influence from the previous periods. Then, re-evaluate it and enhance it into a new and reliable forecasting strategy.
Find which key points have the greatest impact and recognize the forecast method you used. Were they able to drive sufficient positive results to the company's current financial health? Or do you need to adjust the forecast method for further improvement? What else is missing in your current strategy?
#4: Keep an Open Communication
All departments of an organization should coordinate their level of understanding regarding forecasting as it affects all areas of business. Therefore, you should maintain open communication at all times to minimize operational setbacks. For instance, ask for roadmaps or other types of strategic plans from a certain department.
These plans will serve as their response to potential changes in operations or policies. It's important to ensure they understand why adjustments are necessary, evaluate their solutions, and suggest improvements until you come up with an agreement.
#6: Monitor and Reassess Everything
Last but not least, keep in mind that forecasts shouldn't be static. They continuously change and improve, depending on your evaluation. Therefore, it's important to revisit and keep track of your forecasts regularly. It will help you prevent potential risks before they become bigger concerns in the future.
Check whether your forecasts still reflect a positive impact on your finances or not. Second, ensure that information is always up-to-date. Lastly, keep improving your forecasting skills; analyze your previous mistakes, improve them, and be more confident with your next projections.
#7: Hire Financial Management Help
If financial management is not your expertise, you may need to get some professional aid. For example, a financial reporting analyst can help you with forecasting. They look at the big picture of a company's finances and plan strategies to ensure good results.
At the same, you may also seek help from bookkeepers and accountants. Before the analyst does a forecast, they need to gather important data first. Most of these are found in the reports and documents generated by bookkeepers and accountants.
Seamless Financial Forecasts With Unloop's Accurate Bookkeeping and Accounting Services
Nothing comes easy with accounting for an eCommerce business, especially financial forecasting. It takes a lot of work, from the data you need to analyze to keeping track and monitoring the effectiveness and accuracy of your forecasts.
But with good forecasting practices, your efforts will eventually pay off. If you're unsure how to go about this and have to start from scratch, consider outsourcing eCommerce bookkeeping or accounting services. The Unloop team can help you understand and organize your financial duties properly.
Our bookkeeping package includes the organization of financial statements as well as expert support and analysis for eCommerce companies. Moreover, we work with partner accounting firms to ensure your books are up-to-date, compliant with the requirements, and reliable in financial forecasts. Allow us to help you grow and maintain profitability in the ever-changing eCommerce market.