There are many reasons why someone might start a small business, but the financial forecasting aspect is unlikely to be one of them.
Perhaps you started your small business because you have a special skill or talent – maybe you’re a darn good cook, for instance. Unfortunately, that doesn’t make you darn good at managing your restaurant’s finances.
Running a successful, financially stable business takes a lot more than being good at something. To make money with your talent or ideas, you must be good at running the business that your skills brought to life.
Without a strong financial foundation, your business is likely to go through erratic financial cycles. If you’ve ever been through periods when you had very little financial flexibility – perhaps followed by periods when money was seemingly no issue – you know the pains of managing a small business without a financial forecast.
The foundation of financial forecasting is understanding your business cycle:
Many business owners immediately think of seasonality. But, while some cycles are obvious, others may not be so apparent on the surface. Realistically, most industries go through sales cycles of some kind – despite the perception that they don’t deal with seasonality.
For example, because people eat every day, you may assume that restaurants experience little or no seasonal cycles. On the contrary, people tend to eat out less during daylight saving time because it becomes dark too early.
Failure to recognize this subtle but significant cycle has a big impact on a restaurant’s bottom line. You could potentially stock or hire inappropriately. Restaurant owners and managers would be wise to trim their staff during daylight saving time.
As always, detailed record keeping is a necessity. With accurate historical data, you’re able to look into your past financial statements to uncover patterns:
Your buying cycles must be planned far out in advance in order to ensure that you waste no resources.
This is often a challenge if you’re starting a new business, but there are many people to lean on. For starters, your small business consultant should be able to guide your financial forecast. You should also talk to other business owners in your industry.
Whether you’re a young, newer company or a seasoned small business with years of data, you must develop a financial forecast to ensure healthy cash flow and, ultimately, a healthy bottom line.
Learn the questions you must ask to ensure proper management of your cash.