As an aspiring entrepreneur, launching a business is often one of the biggest decisions. As exciting as it can be to embark on this journey, it also requires careful consideration and planning. If you are looking for success, financial planning and forecasting should be part of your startup strategy. Taking control of your finances from the beginning is essential for the health and growth of any business venture. It’s what separates successful companies from those that fail in their early years.
This blog post discusses why efficient money management through financial planning and forecasting is the key to helping your startup business succeed. Keep reading!
Financial Forecasting: A Look Into Future Finances
As the name suggests, financial forecasting predicts how your finances will look in a given time period. Forecasting is usually made annually and based on historical data for objectivity and accuracy.
Note that forecasts aren’t 100% correct, and they are always subject to change, especially if there are new variables that pop up during the fiscal year. Nevertheless, it pays to invest in forecasting, especially if you are a startup. Here are some benefits of financial projections.
Objectively See Your Business’s Financial Future
No matter how limited the historical information is for new businesses, it helps if you still base your financial forecast on any of the past data you’ve gathered. This practice ensures that you have bias-free, objective, and accurate forecasting of future income, expenses, savings, profits, and trends.
Just note that there is a higher chance for beginning businesses to have forecast changes, as owners are testing the waters. Nevertheless, the forecast is still a good guide in the decision-making process.
Anticipate Your Income
It’s exciting to know how much you’ll be earning in the next year! Knowing these details brings a lot of benefits like the following:
- You can prepare the supplies you need for peak months. This knowledge ensures you won’t run out of stock and that you can keep the sales coming.
- The sales forecast will serve as your beginning sales benchmark—data you will be challenged to maintain or beat.
- You will also know how much income tax you’ll need to pay, so you’ll have a chance to lower it.
Foresee Your Expenses
With your knowledge about your income comes the visibility of your future expenses. If you spend the same amount as you spent from the period you derived your data from, you are likely to have the same income.
If you already have a large income, this is good news. All you need to do is to maintain the best practices and keep expenses to a minimum to maintain your high income. However, if you want to raise your revenue, you’ll get the chance to take a closer look at the areas where you can minimize the costs.
Know How Much You’ll Save
Have you successfully saved in the previous year, or was it a challenge? As a startup business, it’s a bit of a struggle to begin saving, but you can still make it a goal and achieve it for the coming year. To successfully do this, financial forecasting will be of great help.
When you know your income and expenses in advance, you’ll know your net income. Net income is calculated by deducting the total expenses from your total income. Then, you can plan on how much of this net income will go to your savings.
Months and quarters with low income, high expenses, and the inability to hit revenue goals can happen. Some of the expenses which can turn into roadblocks when left unmanaged are the following:
- Bank fees and interests
- Rent for office space and equipment
- Employee incentives and benefits
- Outsourced assistance
- Charity contributions
- Advertising and marketing
- Debts and interest fees
Financial challenges will be reflected in numerical form if you do financial forecasting. You can pinpoint specifically what the culprit is and can plan how to manage it better moving forward.
Prepare for Investor Presentation
Financial forecasts are beneficial for your knowledge and a helpful tool for you to gain more investors. As a startup business, having individuals willing to invest in your business keeps you from having large loans. Interest fees can hurt your business more than you know. Your investors will also likely be well-versed in the ecommerce industry and the products you sell. You can benefit from this expertise.
If you see your business working hand-in-hand with investors, a financial forecast can help gain their trust. This report lets them know if your company is worth investing in.
Planning: A Financial Forecast Complement
Financial planning is essential to all businesses, especially for startups like yours. The plan serves as a guide, so all your financial decisions are not made blindly. A forecast and a financial plan are always intertwined. The latter will be the means for you to bring the forecast to life or improve the outcome of that report. Through a well-thought-out financial plan, you can reap all these benefits.
Gives You a Clear Game Plan
Financial planning allows you to set clear future goals and ways to achieve them. Through it, you can create step-by-step annual plans on how to maintain a profitable company, maintain or increase income, save, set financial plans for profit, and see when you can expand your growing business.
You can practice strategic decision making because you have visibility on all your assets and an idea of the possible costs. Hence, your actions will be directed towards spending less and earning more.
Drives You To Reach Profit Goals
Your income trend in the forecast will remain in numbers unless you work for it. If you continue the techniques of your current operation, you are likely to achieve the same earnings as the previous years you got your data from. However, if you are ready to step up, you at least have a base point through the forecast. You can be as creative as possible with the plans you suggest to increase your business income and revenue, or attain the highest profit possible.
Looking at your expenses closely is the key to ensuring that you make the highest income. The lower your expenses, the higher your income will be. As a startup business, here are some helpful tips you can follow:
- Pick the most cost-efficient supplies so new supplier partnerships last long.
- Choose technology, applications, and software that can optimize your work processes through machine learning and allow you to save on payroll in the long run.
- Review your expenses from the previous year, and check which expenditures you can still lower and control to save more.
Helps You Proactively Overcome Roadblocks
Challenges are a constant in running a business, especially when you are just starting up. For instance, you will see which months sales become stagnant. In this case, you can heighten your marketing and advertising beforehand to avoid it from happening. You will see how much taxes you are to incur in certain periods, so you can control travel expenses, utilize retirement and health insurance benefits, check qualified deductions, and deduct charity contributions. Many more roadblocks can be proactively addressed or kept at bay with a forecast and proper strategic planning.
Show Confidence and Forward Thinking to Investors
Having investors for a startup business is a great help in ensuring you have enough capital to launch and keep your business running. Showing your financial forecast is putting your best foot forward, but telling them about your financial plan shows your confidence. Your plan shows that the financial data will not just stay in the books but will come to life. As a result, investors will be more encouraged to invest their money in helping your business grow.
Get Assistance From Unloop
Preparing a financial forecast will help any new business succeed in the long run. It's essential to get valuable insights on how much income you'll bring in and what your expenses will be, and can even predict any roadblocks that could come up. A financial forecast is also key when pitching your business to investors—it shows that you're confident and have a clear plan for the future.
If you need help in getting started, our team at Unloop can assist you with forecasting and planning so that you can set your business up for success. Let us help you work on the limitations of financial planning and forecasting and make the most of these tools. Contact us now, we’d love to assist you!