It’s a rare entrepreneur who enjoys working on financial forecasts. Many feel like the time could be better spent on actually developing and running their business. Still, forecasts truly are a necessity. You need them to attract investors, but more importantly they help you develop long-term strategic plans.
Unless these forecasts are fairly accurate they aren’t helpful at all. Inaccurate forecasts can lead to upset investors, mismanaged expenses and, potentially, running out of cash. Here are a few tips to help you make your forecasts as accurate as possible.
1. Use multiple scenarios.
There is a strong temptation to be optimistic when forecasting growth. To counter this, many entrepreneurs end up using extremely conservative estimates. In reality, neither is the only option you should forecast. You should devote your predictive energy to at least two scenarios, one optimistic and another cautious. This is especially true if there is uncertainty surrounding major factors that could impact your business, such as government regulations, new competition, or even overall economic growth.
It can be frustrating to use multiple forecasts. It clashes with the part of our brain that is hardwired to desire certainty and precision. Still, it helps you maintain flexibility in your strategic planning and create more realistic expectations for your investors.
2. Start with expenses.
In general, it’s much easier to predict your expenses than your revenues. Start building your forecast model . . . . . .>>> READ MORE at: