Forecasting Done Right

Let’s talk about forecasts. Weather? Nope, they seem to be frequently wrong. How can so many people using the same equipment be off point so often, and still be in business?

Government economic forecasts? Another no. Strictly by the numbers, they get it right sometimes, but wrong often. Then they get to revise 30-45 days later and everyone seems to forgive them. They’re in too much of a rush to pump out the numbers before they count all of the chickens properly.

Financial forecasts for your business? Right on the money! Financial forecasts are the analysis and accurate projections that represent a peek into the performance of your business going forward. They’re important because often your creditors and banks pay close attention to them, and form opinions and then decisions about the future relationship they want to have with you.

First off, business forecasts need to be accurate. Seems pretty obvious, right? They also need to be easy to understand and digest, and believable. Why? Because a smart banker is going to check your prior forecasts against current quarterly financials, and they need to be somewhat consistent. If they’re not, the smart banker is going to lose faith in your forecasts, and in your business…not a good thing!

At Oxen, we’ve got quite a talent for forecasts (if we do say so ourselves), and the bankers of our clients really appreciate them. So, what’s our secret formula?

Our forecasts are liked by the banks because they’re supported by detailed assumptions that they can understand; in other words, we speak their language. They feel more comfortable when we do them – as opposed to our client’s internal staff – because we do them independently of the business, meaning they’re much more reliable.

What’s in our forecasts that makes everyone so happy? We include a full balance sheet and not just a simple Profit and Loss forecast. We take current and future taxation into account, and include assumptions about capital expenditure, how quickly customers pay, and how quickly suppliers are paid; leading to a detailed cash flow analysis.

Pretty good stuff, right?

But that’s not all. We include a sensitivity analysis which shows what the bank balance will be if sales increase or decrease, so bank credit departments can accurately assess the risk of the business to the bank. That one’s always a favourite.

But, it’s not all about the banks; our clients find our forecasts are a helpful tool to make sure they pay the least amount of tax possible, but avoid the trap of underpaying when in growth mode. This because the forecasts are forward looking and start from a zero base. We ask all the hard questions to see what each item will be, and we don’t take last year plus 10% (which is the easy forecast method used by many accounting firms).

You can also use our forecasts to measure performance and set goals; kind of like a business plan, but written in dollars and cents rather than words. A client favourite is our ‘What if’ tool, which answers those tricky questions. For example, what if I hire a new salesperson and sales increase by X – how does this affect my cash flow? Our forecasts also show in which months cash will be tight, and in which months there will be surpluses, so the business can plan around these; a real lifesaver for some small firms.

You’ve probably been exposed to business forecasts from your accounting firm in the past, and we’ve seen many over the years. But trust us – you and your bankers will love ours!

We designed our forecasts the way we did because Oxen is not your a-typical accounting firm, and unlike the weathermen, we’re much more accurate in our forecasts. 

Want to know more? Let’s chat to see if we can make great forecasts together.

Contact us now! 

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