Making financial forecasts should be part of your general business planning. Regardless of whether it is a cash flow or a loss account one, it should be put into consideration when making plans for your business. The forecasts should be on a regular basis. This is because they enable you to plan your future expenses, revenues, cash requirements and growth. It is also important to have them for third parties who have interest in your business. For example, a bank would require a forecast of your business before deciding on giving you a loan However, in as much as the financial forecasts are necessary for a business and need careful preparation, business owners make some common mistakes when compiling and presenting this information.
Failure to include all the expected expenditure and income projected. Usually, this is an error that arises when making the profit and loss account. It is vital that you think hard and long as to all the expenses that your business could undergo in future. Normally, expenditure in car tax, car insurance, and other items is omitted. Failing to include some expenses and revenues can lead to a misleading picture as regards the business. This could also be embarrassing if a third party highlights that you have missed out certain items.
It is a mistake to include expenditure invoices and sale invoices that have not been paid for. This is a common mistake since a cash flow forecast should only detail anticipated cash and bank movements. Omission of payments to be made only once like paying tax for the car is also a mistake. Make sure you include payments you have made when including bank movements and expected revenue.
There also occurs a mistake of overestimating sales that are anticipated and underestimate expenses that one projects. This excessive optimism is erroneous and should not be allowed in a financial forecast. This can easily be noticed by money lenders such as banks and can lead to questioning your judgement. As a result, this makes them lack confidence in you. It is, therefore, ideal when preparing a forecast to consider a best-case scenario and worst-case scenario set of figures.
Poor presentation of the financial estimation and being untidy is also a mistake by a number of owners of businesses. This includes lack of numbering of documents and proper printing. Since the financial forecasts will be handed to a third entity, neatness and orderliness should be observed for correct impression. When you are having nicely presented financial forecasts; it opens the windows of your business to the people that you target. However, financial estimations that are not properly presented reduces confidence for your business.