Financial forecasting a 'pivotal tool' to futureproof businesses

Business owners are urged to protect their companies from the economic uncertainty, cost-of-living crisis and recession by keeping on top of their finances through robust forecasting.

Accurate forecasting plays a pivotal role in futureproofing firms wherever they sit in the business life cycle, says HURST’s Jo Gibson.

Jo heads our specialist digital team, which helps companies to improve their performance and efficiency by making the most of technology.

Throughout the pandemic, HURST Digital advised a range of businesses on financial forecasting, by producing reports for them or helping them to implement digital systems so they could generate these themselves.

The number of our specialists working on these projects doubled as demand soared, and has continued to grow through external recruitment and internal moves to bolster our team.

Jo said: “Our forecasting projects give companies real-time information in easy-to-understand formats, and it’s become clear that having accurate cash forecasts is vital for companies to navigate their way through uncertain times. They help them monitor their cashflow, as well as assisting with scenario planning and stock management and anticipating customer demand.

“Whilst COVID is in the rear-view mirror, businesses are continuing to face ongoing uncertainty.

“It’s imperative that they implement forecasting policies and review them regularly so they can adapt to changing circumstances as they arise, and can swiftly pivot to alter their plans in response where necessary.”

She added: “Throughout COVID, we saw that clients who had forecasting embedded within their core business strategy tended to fare better than those taking each month as it came. They were able to look forward to what was on the horizon and model various scenarios to ensure they were able to react to whatever came their way.

“Many businesses shy away from forecasting, as it is often time consuming, difficult to do, has lots of uncertainties and quickly becomes out of date if not maintained as part of the regular financial control.

“However, advances in forecasting technology in recent years, and the growth of cloud accounting solutions, means these issues belong in the past.

“Most forecasting solutions available today integrate with cloud-based accounting systems and use sophisticated data analytics to do much of the ‘heavy lifting’. It is now easier than ever to have a robust forecasting and cashflow model in place, real-time, all the time.

“A lot of the software solutions available also have integrated features for credit control, access to funding and embedded management reporting, so there are significant additional benefits to help business owners.”

Jo added: “With 40 per cent of small and medium-sized businesses experiencing negative cash generation for several months of the year, it is more important now than ever before that they are on top of their finances.

“For start-ups, cash is typically short, and they need to spend it wisely to generate the best return. Forecasting allows them to look forward and plan for the next recruit or investment in equipment, whilst making sure that they stay afloat. Lenders will also want to understand their current position, in addition to what the future looks like, to make their decisions.

“Many businesses are going through unprecedented periods of growth, which can cause cashflow restraints if the investment in working capital is not carefully managed.

“Forecasting is also integral to the exit planning process. Good quality, accurate management information is essential for any business preparing for a sale, not just for due diligence purposes but also so that they can understand what the future looks like. Having a robust forecasting model which demonstrates the company’s ability to deliver on its promises is a key value driver.”