Have you made it a habit to check your accounting dashboard to see where your business is financially? This is a good start as it lets you keep an eye on your goals, milestones, achievements, and points for improvement. You can continue best practices that allow you to get more sales and lower business costs. At the same time, you can identify the pain points and address them as soon as you can before they cause detrimental effects on your business finances.
On top of tracking your finances, there is another business practice that can help you even further—business forecasting. In this blog post, we’ll explain what it is and how bookkeeping can help you achieve forecast accuracy.
Business Forecasting Basics
The Basics
As the name suggests, business forecasting is the practice of predicting how your finances will look at a specific time in the future. You’ll want to see predictions for future sales, future events, and future trends. The forecasts can be done quarterly, annually, or even every couple of years. Metrics and variables like sales, operational costs, income, expenses, and revenue are often the essential information collected and dissected.
Forecast findings, especially market trends, help business owners like you set realistic goals and doable action plans to achieve or exceed the data. Depending on the business forecasting method, forecasters rely on various hard numerical data or information from experts and surveys. Businesses do this to ensure their business will thrive, remain relevant, and rise against the competition.
Quick Step-By-Step
Here are the steps to keep in mind for the forecasting process to be organized.
- Identify the Problem: Know the reason and the goal of your forecast and what you want to predict.
- Zero in on Variables: Check which business variables will give you the answer.
- Pick a Forecasting Method: Know whether a quantitative or qualitative method will help you get the answers or achieve your forecasting goal.
- Analyze Findings: Once you have collected data, forecasting begins. It’s best to have software and business analytics to generate accurate predictions and reports quickly.
- Verify Outcomes: Do not forget to verify whether your forecast came to fruition and check discrepancies if the prediction did not come to life.
Business Forecasting Methods
There are two main forecasting models for business, and there are subtypes under them. They can help you with demand forecasting, sales forecasting, cash flow forecasting, and even scenario planning for you to make smarter decisions for your business. Check out the difference between quantitative and qualitative methods.
Qualitative Forecasting
The qualitative method relies less on numbers but more on the observations of subject matter experts and opinions of specific groups of people. This method is best used for short-term predictions when the business doesn’t have substantive historical data.
Under its wing are two other types: market research and the Delphi method. Market research involves interviewing or surveying individuals and groups to know the marketability of a product to be launched.
On the other hand, the Delphi method relies on experts’ predictions. Think of this method as taking advice from individuals with indisputable track records and experience in the field of business you are working in.
Quantitative Forecasting
Meanwhile, if your company has solid financial transaction records and you want to create forecasts based on hard data, you can use a quantitative method. This method solely relies on the variables you choose and the numbers corresponding to them, with no human opinions involved. Long term forecasts can be done using this method.
There are three more approaches used quantitatively: the indicator approach, econometric forecasting model, and time series. The indicator approach sees the relationship between variables, so when one indicator changes, another number will follow.
On the other hand, the econometric model is more targeted and doesn’t assume relationships between variables unless tested and backed by data. Lastly, if you want to see trends and forecasts in a particular period, use a time series analysis.
Benefits of Good Bookkeeping in Forecasting
Business forecasting plays an important role in defining your company's future, so the goal should always be to get it right. And bookkeeping plays a huge part in achieving this. Forecasting will be much quicker if you have your bookkeeping and accounting already running. Check out why here.
High Trust in Data Accuracy
Historical data is the core of quantitative business forecasting. Having the correct numbers is a must, which is only possible through proper bookkeeping. A tag team between a bookkeeper and the best bookkeeping and accounting software ensures all transactions are recorded. Records in documents and those in the books should always match. With it, the data will also be validated as bookkeepers will constantly check for any financial discrepancies.
Launch a Quantitative Forecast Anytime
One criticism about business forecasting is the reliance on old data. If the variables used in forecasting are too old, the findings may become irrelevant to the current state of your business because so many factors affecting the numbers have already changed.
However, if you have your business bookkeeping in place, you always have fresh data to use for forecasting. Bookkeeping involves keeping records up-to-date for report generation. With this, you have a quick view of a company’s current financial health. As a result, your forecast findings will be more reliable as well.
Qualitative Business Forecasting by Experts
If you ever need to use a qualitative method for your forecast, opinions from experts or a team to run market research, accountants and bookkeepers help immensely. Bookkeepers will handle the organization of the data you get from market research. Then, the accountant, being an expert in report creation and coming up with suggestions, will give you choices and scenarios you can use for decision-making and your business plan. However, you still need to exert prior effort in interviewing and surveying people and getting ideas from experts.
Tips for Collecting Accurate Data
You know by now that accurate data is essential in having a reliable business forecast. When you have bookkeepers and accountants on your team, you won’t have any problem with this. Nevertheless, it’s best to know how your company can collect and store accurate data as a business owner.
Invest in Bookkeeping and Accounting Software
Having the proper tools make data collection and storage easier. Many business forecasting software these days are integration-capable, so the data you have from other websites and applications can be stored in a single software. You can just rely on this main data source for your forecast. If you are looking for a forecasting tool, some software even makes it easy, allowing the generation of forecasts in just a few clicks.
Be Hands-on in Checking Your Books
As a business owner, you should be able to rely on reports. This means keeping an eye on the books where the data comes from. Make it a part of your daily routine to check the books and see if there are any mistakes or discrepancies. Doing so will allow you to correct them quickly before they turn into wrong reports and forecasts.
Hire Expert Bookkeepers and Accountants
You can hire in-house members who will be familiar with your day-to-day business operations. You can also have remote workers who will update your books occasionally, which costs less. Bookkeeping and accounting agencies are also available, offering complete solutions for bookkeeping, taxes, payroll, and forecasting!
Bookkeeping and Forecasting Assistance by Unloop
As a business manager, you’ll have a lot on your plate, but your finances should be on top of your priority list. It defines whether your business will thrive or fail. Forecasting in business plays an important role in foreseeing how your finances will turn out in the future. You can proactively work on solutions if you see dire forecast results, and maintain best practices or increase your efforts if your forecasts look great.
Lighten the load and responsibilities by dedicating the task to experts. You can count on us here at Unloop! We have a team of bookkeepers and accountants who can gather accurate data for you, help you run reports, and create forecasts for your business. Does this sound promising? Give us a call now. We’d love to talk to you!