Small businesses and start-up businesses do not usually get the most of their financial information. This is due to a variety of factors, of which one of the more important ones is the intense focus on operations and growing the business through sales and capital investment. The attention to financial information is usually focused on cash flow and compliance requirements like tax reporting. However, a business's financial information is powerful in the future, predictive information that it often conveys. One powerful use of this information is financial forecasting.
What is Financial Forecasting
Financial forecasting predicts a business's future financial performance or environment through the analysis of historical data. When there is a lot of data on a special financial metric, say the number of buyers from the state of California or a product on an online retailer's store, future data can often be predicted with a high level of confidence. Even for new businesses, forecasting can be often be performed using general market data or data obtained through the new business's market research.
What-If Analysis in Forecasting
A strong feature of financial forecasting in setting up what-if analysis models. A what-if analysis model uses adds an extra input in the forecast of future financial information or performance based on historical inputs (i.e. employee hours worked) and performance metrics (total number of products produced). This analysis allows decision makers of businesses to predict what the performance of a key indicator will be in the future based on a decision to allocate a certain quantity of a resource (like labor hours).
How is Financial Forecasting Performed
There are many products in the marketplace that simplifies aspects of data modeling and financial forecasting. A common method of financial forecasting involves exporting the financial data from a business's accounting system (i.e. Quickbooks), organizing the data in Microsoft Excel, and then analyzing the data and creating live user interfaces for the forecasts through a data analysis software such as Microsoft Power BI or Tableau.
How We Can Help
Our team here at Cloonan CPA Services is capable of helping businesses of all sizes maximize their financial performance through the use of strong financial forecasting analytical tools. We welcome a conversation with the business leaders looking to find significant competitive advantages and grow towards their financial goals.