Uncertainty can be a major threat to your strategic financial planning.

Being unsure of what lies around the corner makes it difficult to make those important financial decisions around operational budgets, investment and growth.

But by using forecasting, you make it easier to manage your finances and reduce some of the financial uncertainty.

As the saying goes, nothing is certain aside from death and taxes, but here are two key techniques you can use to reduce your financial uncertainty.

1. Cashflow forecasts

Cash is king, so having a detailed overview of your cashflow trajectory is vital. 

Cashflow forecasts look at how much money is going in, and how much is going out.

And you want to be doing this on a monthly basis.

If you already use accounting software, you will have the ability to organise cashflow forecasts, so if you are unsure about how to access them, speak to your accountant.

Once you get the basics right with your existing software, you can then build on that with third party apps which will help you access more data.

As a Xero-focused accounting practice, the standard Xero plan has the ability to organise short-term cashflow forecasts for the next 90-days.

It can help you understand what clients are likely to pay over the next 90 days, and when, and what payments you will be making to suppliers, and when. 

This will give you clarity on what your bank balance should look like.

Depending on your situation, think about the following:

1) If you aren’t already using cashflow forecasting, make a start- even if it’s with a simple plan.

2) If you are already running 90-day cashflow forecasts, think about how you can build on that to look at a 12-month forecast.

By doing this over the next 12-months, you can give yourself clarity about where you might need additional funding for the business.

2. Budget forecasts

During one of our recent masterclasses, we highlighted that budgeting and forecasting are interchangeable but different.

A budget is something you would likely do on an annual basis, whereas forecasting is something you would do on a monthly or quarterly basis, or even more often.

Budgeting is usually the first step in your forecasting. 

This would be where you identify:

🔍 How much revenue you expect over the next 12 months, and

🔍 How much your expenses are likely to be over the next 12 months

As part of this, you would be predicting any increases and building in contingencies.

Once you confirm your budget, you use that as your baseline going forward, and your forecasting would then help you stay in line with the budget.

If something dramatic (positively or negatively) happens, as it did with the Brexit vote for example, you would then look at revising the budget.

Looking to the future with your financials

Analysing your cashflow statements, profit and loss reports and quarterly management accounts gives you an indication of where you’ve been as a business. 

But these reports don’t tell you much about where you’re going, and what your financial future may look like.

By looking forward, rather than backward, you can start to get a better idea of the landscape that lies ahead.

That includes future cashflow, revenue, profits and operational budgets.

The software you use as part of your accounting process will provide a great base to help you reduce uncertainty.

And a proactive accountant, who you speak to on a regular basis, can help you use that data and read between the lines so you can improve your situation.

What is your biggest takeaway from this article?

Access more of our tips for growing your profits and your business

Are you looking for a more proactive approach to your accounting, so that you have a better understanding of your business and can grow your business?

The team at ReignSupreme have over a decade of experience in the accounting industry, and we help our clients to understand their finances, so they can grow their business, by implementing our proactive accounting process.

We see our role not as bystanders, but as part of your team- as your finance business partner, supporting you on your business journey.

🎯 We’ve recently written a free e-book outlining 5 tips for increasing your profits and growing your business.

It also uncovers how we helped a client increase her profits by 25% and how you can increase yours and grow your business.

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