21 October 2021

How to get meaningful forecasting out of your digital business systems


Online Accounting,

Expansion & Improvement

When you’re defining the future path of your business, forecasting can be an invaluable tool. But forecasting doesn’t just have to be about cashflow. With the right forethought and planning, your forecasting can help you to understand your performance, avoid the common financial pitfalls and get the oversight you need to meet your key business targets.

Anoop Rehal explains how forecasting helps reveal the positives in your business journey, not just the negatives, and how this impacts on your ability to build a successful business.


Why is forecasting so vitally important for a business?

Forecasting is a very disciplined science. Over the course of the pandemic, cash has been king, but now that we’re out the other side, cash is not the only metric to be focusing on. The economy is slowly starting to recover, there’s a bigger demand from consumers and we’re returning to something close to usual trading. But that forces you, as an owner, to start asking some big questions about the next stage of your business.

For example:

  • What is the business looking like at the moment – are we on the road to recovery?
  • What do we need to do to plan successfully for the future?
  • Do we need more or less office space now that hybrid working is the norm?
  • Could we make some substantial savings by reviewing our use of property and spending?

Being in control of your budgeting and forecasting helps to see what the year ahead will look like. It’s not a crystal ball, it won’t get everything 100% right every time. But it does give you a skeleton to work with, and that makes you much more prepared.

The forecasting is there to reveal the future path of the business, showing you where there’s a potential threat to avoid, but also where there’s a positive opportunity to grasp onto.


What’s the value of carrying out regular forecasting?

Once you’ve completed a forecast, that’s not the end of the process. It’s important to go back and revisit the forecast at regular intervals. By revisiting the forecasting, and looking at your performance, you can start to ask the most meaningful and pertinent questions.

For example:

  • Why didn’t we hit our target?
  • Why didn’t we get enough supplies?
  • Do we need to hold more goods in stock?
  • Are we going to run out of people to meet our operational needs?

It's a challenging economic environment out there at the moment, so it’s more important than ever to have this kind of review process in place. Some businesses have done well over the pandemic and haven’t needed government cash – they’ve managed to get through unaided. But many businesses have taken out government loans or have taken out credit with suppliers, so that’s going to start beginning to bite once the repayments kick in.

You need different conservative and cautious scenarios worked into the forecasting, so you can answer the important what-if questions.

When a supplier suddenly starts demanding payment, that’s something you should have known about from your forecasting and have planned for in your cash management. It’s about being proactive not reactive.


What are the basic elements that drive good forecasting?

The forecast is your skeleton framework to work towards. Owner-managers with the right forecasting have the best knowledge about their business, and once your forecast is on paper and your desired outcome doesn’t transpire, you can find out WHY.

Because of this, it’s vital to have the right elements included in the forecast and to carry out the work that’s needed prior to running your initial forecast.

Key elements to cover include:

  • Reviewing the state of your current data – your business data needs to be correct and up to date. If data is out of date or incorrect, it’s not going to add any value. You need the correct numbers in the first week of the month to inform your decision-making for the rest of the month.
  • Using cloud tools to deliver real-time data – having real-time data to use in your forecast gives you a real edge, but it does mean using the right tools. Solutions like Dext and Auto Entry help you scan receipts and invoices and digitise them immediately, so your bookkeeping is 100% up to date and you can access real-time financial information via your accounting platform.
  • Keeping on top of bank reconciliations – cash may be king, but your bank transactions are the real gospel of truth. If you don’t complete your bank reconciliations (bank recs) on a regular basis, this leaves gaps in your numbers and stops you achieving real-time data. Using live bank feeds and automated bank reconciliations in a platform like Xero helps to speed this all up.

In general, what’s needed is a change of approach in how you manage your numbers. Have the numbers in real-time. Have the live bank feeds. Have invoices automatically digitised and pulled into the system. When you get these accounting basics right that helps keep your forecasts both timely and incredibly insightful.

With all the information correctly stored and included in your forecasts, you can see what’s coming down the track – and that’s an invaluable tool for your decision-making.


What are the key metrics to record, track and forecast?

I’m a big cloud champion, but you don’t need the latest tech to deliver good forecasts. Your forecast could be a one or two-page report with your cash balance and cashflow included. That’s something you can achieve even from an old-fashioned desktop accounting set-up.

Metrics to focus on include:

  • Cashflow – 100% look at your cashflow and track it carefully
  • Budgeting – review how you’re tracking against your various budgets
  • Debtor and creditors – look at your debtors and creditors ledgers regularly
  • Customer sales – track your top 10 customers and see what they spend, how quickly they pay and what their average spend is over the period.

When you track these metrics over time it gives you the detailed information needed to get proactive with your finances. You can negotiate discounts and credit with customers, you can agree on funding with lenders, or you can speed up the mortgage process. If you’ve got access to forecasting for the 2019/20 financial year, you can even measure how the pandemic has affected these targets and the overall impact that Covid has had for the business.

With this drilled-down insight into your finances, you have the numbers, evidence and information needed when dealing with customers, suppliers, banks, lenders and even your main business advisers and coaches.


How does working with an adviser help your forecasting?

As an experienced business adviser, I want to give reliable advice. That’s harder to do if your business information and forecasts are incorrect. With poor quality data, I’d be giving advice based on the wrong information, so it helps that you have the systems and the forecasting set up and provide us with data that’s good to work with.

There’s still pushback from some businesses when it comes to using automated bookkeeping tools like Dext. People are resistant to change, even if the suggested changes will provide better data for them. What’s needed is a change in mindset, where we see the value of using new tools and processes to provide better data, real-time information and top-quality forecasts.

You don’t start a digital transformation process for the sake of it. You switch to digital and embrace the apps and tools to improve your business and add value. And, by doing so, you open up enhanced ways of working with your adviser. We can look at the stage of business you’re at and help you to achieve the right goals, backed up by solid numbers and forecasts.

And when you partner with a firm like Haines Watts London, you get the additional bonus of our wide-ranging experience of the whole UK business landscape. We’ll help you look at your business in line with other businesses in your sector and can benchmark yours against them – giving you a solid view of the targets and numbers you should be aiming for.


Looking at the positives, as well as the negatives

For me, one of the key benefits of setting up a clean, streamlined digital business system is the impact it has on your ability to deliver deep forecasting – and your ability to look at both the positives and the negatives in your numbers.

Even using the simplest of forecast templates, you can start to hone in on the opportunities and resolve the key financial challenges. Having that ability to deliver more positive outcomes and to get in better control of the next stage of the business is priceless.

Forecasting is about being able to demonstrate what you think you know and what you actually know – and having the data and evidence to back it up. As advisers, that’s how we help you make the most of your financial data. We’ll get you up to speed with digital, get the best processes in place, and will provide the forecasting, reporting and advice you need to hit your targets and take your business to the next level.


If you want to enhance your forecasting capabilities, get in touch for a chat with our advisers