Episode Transcript
[00:00:00] Welcome to another episode of financial Snickens. We are hitting up number four in our financial reporting series. And in our, in, let's start again, welcome to financial Snickens. We are exploring our financial reporting series. And today we are going to be talking about the role of financial forecasting for small businesses.
We're going to talk about what the importance is of financial forecasting in anticipating future needs and making informed business decisions and how to implement. Financial reporting. So the landscape for entrepreneurs is ever changing. We have financial challenges and they, there's so many [00:01:00] opportunities and navigating it is a superpower.
So I'm going to help you achieve the superpower. So one of the things that seems to be overlooked by small business owners is this financial forecasting. So it really will help you. Uh, it really will help you. Forecast your future so you can anticipate needs and stay informed and be able to make strategic decisions.
So now I'm just going to tell you a little bit about understanding financial forecasting. So first, what you're doing is you're going to anticipate what your future needs are. So. Financial forecasting enables small business owners to project their future cash flows. And so what you're trying to do is anticipate what income is going to be happening and what expenses are going to be happening.
So this way you can identify the gaps [00:02:00] that might happen for you. And you also helps you to plan accordingly. And ensure that there's enough money to cover operational costs because you gotta run payroll. So the other, the other part of this financial reporting and the financial forecasting is to have plans.
For future expenditures. So you might want to buy a piece of equipment. You might want to invest in technology. There might be something more that you need to have. And this way you can strategically allocate these resources, money, people, so that you will be able to take advantage of these situations when they arise.
When you plan for something, it will happen. So the financial forecasting also takes into consideration making allocations [00:03:00] that we just talked about. So you're going to be able to make informed business decisions. So this financial forecast, when it's done well, it's a roadmap for these, for the resource
allocation, whether it's money or people, and it helps to guide the small business owners on where to invest, whether it's in marketing or technology or personnel.
Or other critical areas that you need to grow and scale your company. So it also helps you when you do this financial force forecasting. It allows you to evaluate potential profitability of a new venture. Whether you're providing a new service, or you're going to do a new product launch, you can estimate the revenue and expenses that are associated with this new adventure you're going on and see if it's worthwhile to do.
Is there a viability of the return on the investment? For addition initiatives, you can build out several different [00:04:00] forecasts to see what happens. Um, we have a client who wanted to start offering a new service and we ask the critical questions of how many people do you expect to want it by the end of the year or in the next quarter?
And that way we could do some short term forecasting on what might happen. How much was this product or the service going to cost them to launch? What was the marketing involved? What was the personnel involved? What was going to happen so that we could know what kind of revenue they were going to expect and what kind of costs was it going to incur for the business?
Then we can make a realistic viewpoint of should you do it. That is financial forecasting. A lot of entrepreneurs, I think, do this mentally and don't realize that they're doing it already and it's nothing to be afraid of. So it is incredibly helpful to have this written down, have it in a [00:05:00] spreadsheet.
And I'll talk more about implementing financial forecasting and utilizing some tools that we have. So. You know, there's, everything is, you know, uncertain. So what happens when you do this financial forecasting, it equips the small business owner to be able to navigate uncertainties. And you can identify potential challenges early, and you can come up with adjustments for your business.
It also helps you to identify opportunities for growth. And so whether it's what we talked about earlier, whether it's about. Implementing a new service entering a new market. Whatever it is, it helps you to have a clear understanding of what is the potential to happen when you get into that area. So how do you use financial tools and software to streamline this?
So I can tell you that. Um, what we use typically is a [00:06:00] combination of several reports from inside of QuickBooks Online. We utilize their budgeting for the roadmap of where we see things going to happen. Then we also project
out what are the sales going to be for the year? What kind of expenses are there going to be?
Are there going to be any large purchases? And we look at that financial forecast. And we take into account all the things that we know now and things that we think that might happen. You can easily do this on an Excel spreadsheet, too. We happen to utilize the tools that we are experts at, so we use QuickBooks Online.
And we use several of the reporting in there that we can go through. And put down in put down concrete information so that we can go back to it and look at it. The other thing about financial reporting this forecasting that is done is you have to regularly review it and adjust it. It is not a set it and forget it.
You need to review it regularly [00:07:00] and then adjust these forecasts based on actual performance or changes in the business environment and it is a process that Helps the forecast remain accurate and relevant. As you go on throughout the year, so it's not just an exercise to do. It's really about being strategic about your business.
When you do this forecasting, when you start to make guesses about the future, it can seem scary, but it's not set in stone. It's just about writing down your goals of where you hope to be and using. The best knowledge that you have at the time, and it's okay if you have to change it, but it helps because then when something arises, whether it's an opportunity or a crisis, you can look to that information that you used for your financial forecasting and be able to take that information and create a plan to get either over the [00:08:00] crisis or take advantage of the opportunity.
So there is definitely a competitive advantage to having this because not everybody does it. If you want to talk more about financial forecasting, head over to our website at firststepsfinancial. com. Click on let's chat and we can talk more about what reports we can use to help you do some financial forecasting.
