Financial management is an essential pillar for any business, whether new or already well established. A financial forecast is an essential tool for anticipating profitability and securing financing. Whether to convince investors, obtain a loan or manage your business with precision, it allows you to estimate future revenues, expenses and financial needs. This practical guide on developing an effective financial forecast will guide you through the key steps needed to build a reliable model, avoiding common mistakes and integrating relevant financial forecasting tools.
Through this text, discover how to build an effective forecast step by step, the essential tables to include, the importance of working with solid hypotheses, as well as practical advice for optimizing the process. Whether you use tools like Liveplan, Kiwili Or Brix, this guide will provide you with relevant information to make your financial forecasts.
What is a financial forecast?
A financial forecast is a crucial document that allows you to anticipate the financial development of a company over several years. It proactively assesses the profitability, financing needs and cash flow of a project. By managing your activity based on a forecast, you reassure both investors and credit institutions, by demonstrating that your financial strategy is well thought out.
Definition and objectives
This portion of the document is used to establish some key financial indicators. Forecasting is a management and anticipation tool which is based on realistic hypotheses to estimate future turnover, fixed and variable costs, expected profits or losses, as well as cash flow needs and necessary investments. Its objective is twofold: to assess the viability of a project and to secure its financing.
The main tables of a financial forecast
For a forecast to be effective, it must be built around several key tables. Here is an overview of the essential documents to provide:
- Forecast income statement : It measures the profitability of the activity, taking into account projected income and expenses.
- Forecast balance sheet : This table anticipates the financial state of the company, by evaluating assets and liabilities.
- Financing plan : This element assesses the resources needed to start or maintain a project.
- Cash flow plan : It must follow the evolution of money inflows and outflows to avoid cash flow tensions.
Why is it important to have a financial forecast?
Without a solid forecast, a company takes the risk of sailing blind. A well-constructed financial forecast makes it possible to measure the profitability and feasibility of a project before its launch. It helps, among other things, to:
- Identify the necessary financial resources.
- Calculate the break-even point, that is to say the minimum turnover to be achieved to cover expenses.
- Evaluate working capital requirements to prevent cash flow difficulties.
- Test various scenarios (optimistic, realistic, pessimistic) to anticipate financial risks.
If the figures reveal a lack of profitability, it is possible to make adjustments before launching the project.
The 4-step method for creating a reliable and consistent forecast
Preparing a financial forecast is not limited to filling in tables with approximate figures. For it to be relevant and usable, it must be based on concrete data and a clear methodology. Here are the four key steps to follow:
Step 1: Collect precise and realistic data
Preparing an effective forecast begins with collecting reliable data. It is important to analyze market trends, examine the specificities of the sector of activity and determine the fixed and variable costs related to the company. Taking into account elements such as rent, salaries and tax charges is essential to avoid overestimating revenues or underestimating expenses.
Step 2: Build the essential financial tables
A consistent forecast must be structured around the key documents: forecast income statement, financing plan, forecast balance sheet and cash flow plan. Each of these tables plays a distinct role, and their interconnection is crucial to provide an accurate view of the company’s financial health. A cash flow statement, for example, will help anticipate liquidity shortages by comparing cash receipts to cash disbursements.
Step 3: Test multiple scenarios to anticipate risks
Taking different scenarios into account is essential to assess the impacts of potential economic hazards. In general, it is recommended to establish three scenarios: optimistic, realistic and pessimistic. Testing these different cases will allow you to adjust your strategy and make informed decisions to limit financial risks.
Step 4: Check and adjust the forecast regularly
A forecast should not be frozen in time. It must be updated based on actual business results. Regular analysis makes it possible to compare forecasts with actual performance, identify gaps and readjust financial objectives. Obtaining validation of your estimates by an accountant also guarantees the reliability of your forecast.
Securing financial management thanks to forecasting
The forecast is a valuable tool, not only at the start of a project, but also for the daily management of the company. It offers a global vision of finances, allowing you to anticipate needs and adjust strategic decisions.
Anticipate cash flow tensions
Monitoring the forecast makes it possible to quickly identify possible cash flow tensions. By keeping an eye on the balances between revenues and expenses, the company will be able to adjust its investments and strategies based on actual performance. This makes it possible to avoid unpleasant surprises which could compromise the sustainability of the activity.
Adjustment of strategic decisions
Financial forecasting is about more than just numbers. They inform the company’s strategic decisions. Depending on the results of the forecast, choices can be made regarding recruitment, market expansions, or even the diversification of products and services. Flexibility within management is essential to adapt to external changes.
Support investor relations
The presentation of a solid financial forecast is often a decisive argument during discussions with financial partners. Investors and banks carefully analyze forecasts before accepting a loan or investing. A well-structured document, based on credible assumptions, strengthens the trust and credibility of the project.
Financial forecasting tools to use
Many tools can improve the development of your financial forecast. Modern software like Liveplan, Kiwili, And Brix offer customizable solutions to make editing these crucial documents easier.
Liveplan
This software offers an intuitive interface allowing you to easily create a forecast. With built-in templates and practical tips, Liveplan guides users in constructing realistic projections adapted to their sector of activity.
Kiwili
Kiwili is also a popular choice among entrepreneurs. This management software offers powerful reporting features, which facilitates financial analysis and monitoring performance compared to established forecasts.
Brix
Brix is another tool that stands out in the creation of financial forecasts adapted to the needs of SMEs. It allows the simulation of various scenarios and helps in modeling financial strategies.
Conclusion
A well-developed financial forecast is a major asset for any business. Not only does it promote effective management, but it also serves as a basis for informed strategic decisions. Tools like Liveplan, Kiwili, And Brix are key allies to succeed in this process. For proactive and optimal management, it is essential to consider these elements when developing your forecast.
| Painting | Description |
|---|---|
| Forecast income statement | Measures the profitability of the activity |
| Forecast balance sheet | Anticipates the financial state of the company |
| Financing plan | Assesses the resources needed to get started |
| Cash flow plan | Monitors the evolution of money inflows and outflows |