Three Reasons to Love Financial Forecasting and Why Your Business Growth Depends on you Starting Today

Welcome back to the world of financial empowerment, where we dive into the depths of business numbers with a touch of femininity and a dash of fun. 

In case you don’t already know me, I'm Lucy Starbuck, your guide through the world of small business finance. I'm all about empowering female entrepreneurs (like you) to thrive in the world of business. 

In this article, we're going to talk about why I love financial forecasting and some of the impacts it can have on you and your business.

What is Financial Forecasting

Big businesses continuously spend time forecasting, projecting, and making a profit plan. Yet I rarely see small businesses do it. It's usually not on the radar, or people don't have the time. I think, for the most part, it's because people don't know where to start, how to make assumptions, or don't see the value in learning.

One thing about me is I LOVE to keep finance simple. So let's start by unpacking what financial forecasting actually is.

You might hear someone refer to a budget, financial forecast, profit plan, or a profit projection. And all this really is, at its most simple, is a profit and loss. So effectively, all of your revenue that you are expecting to earn in the next 12 months, usually split out by month. This would include all of the costs that you are expecting to incur, or you need to incur to generate that revenue. After all that, what is the profit that you are left with? And so we make these plans to assess our profit growth, or revenue growth. But maybe you're happy with your revenue and you'd like to make your profit more efficient.

The Benefits

I don't care how big or small your business is, if you started your business yesterday, you need to be making a plan for the next 12-months. The discomfort that you may feel at the start of your learning curve is necessary to get to the juiciness, the abundance, the profit, and the cash on the other side.

Imagine a world where you can actually project what you're going to be able to pay yourself every month, fortnight, or whatever it may be. If you knew what would be available to you personally as a salary or wage, then you can create a financial plan that actually executes the steps to get there. How freeing would that be? How in control of your business would you feel?

The How To

Start with the sales you think you are going to generate for the financial year ahead. In Australia, the financial year begins on July 1st, so plan out your desired revenue from July 1st until June 30 the following year. You can do this by looking at your current and future revenue streams and use your history as a rough guide while also asking yourself if you could realistically do more. Put yourself in your future shoes.

What you're actually doing here is asking for what you want. In an ideal world, this feels a bit stretchy but also achievable. As an example: if I want $10,000 of revenue for the first six months, and then in the second six months I want $20,000 of revenue, and I've got four revenue streams, then maybe I forecast that I'm going to grow two revenue streams to $7,500 each, and then the balance will be delivered by my other revenue streams.

Now I need to ask myself, what do I need to do to grow these two to $7,500? Do I need to collaborate with someone? Do I need to invest in marketing or advertising? 

So you start to see what is possible for your business by actually going through this plan.

Take the Action

So we can start to see how having a financial forecast helps us to determine the necessary steps we have to take in order to move us towards the goal. Maybe you realistically don't think you can grow your current revenue streams, is there another revenue stream you can open? Or, maybe you need to hire a coach to help you take the next step in some way which would help move you closer to your target.

Then, taking into consideration the cost of these changes. You want to be really mindful about the choices you're making in your business because you actually are ahead of time deciding what your priorities are. This way, you can also get really selective about the opportunities you'd like to pursue as well.

Tax Considerations

Usually, you would get in touch with your tax accountant once a year when it's time to complete your tax return. But if we can speak to our accountant ahead of time, and we are able to articulate where we believe our business is going to go, we then take part in something called tax planning. 

For example, if you are at the point where you're currently a sole trader, but it might make more sense from a tax perspective to be a company (usually when you're making approximately $110,000 to $130,000 of profit per year), this can help our accountant plan ahead so we are set up in the most tax-effective way. 

By making sure that the business tax amount is as minimal as possible, it will help us make more profit.

Final Thoughts

• Doing a projection plan is not about restricting yourself and what you're allowed to spend. It's about seeing what is possible and what is available for your business. 
• Use your financial forecast to help you determine which opportunities are aligned to pursue and which aren't aligned with your plan. Set yourself up so that you can do more things that you want to do and trust yourself to achieve it. 
• Let your accountant know ahead of time about your profit forecast. 
• Being proactive and planning ahead helps to determine an effective strategy and make more money. 
• A financial forecast helps you to energetically align with and create a structure to allow you to receive the revenue, to receive the profit, and actually create a framework that you can navigate throughout the year. 
• Keep your forecast fluid so that you can amend anything misaligned as you move throughout the year.

I absolutely love talking about the potential and the possibilities of the future. I believe that it enables us to feel powerful and allows us to have expansive conversations around what it is you actually want for your business. 

What do you think, have I convinced you to start profit planning?