Financial Forecasting for Your Small Business

March 15, 2024
minutes to read
Ben Mensah
Table of Contents

Navigating financial forecasting can be a daunting task for small business owners, often requiring a delicate balance between accuracy and intuition. But what if there was a way to simplify this process, making it not just manageable but a strategic asset for your business? In this guide, we'll explore how to create a financial forecast and introduce you to the next-generation all-in-one financial management platform Thriday, which automates and streamlines financial forecasting for small businesses.

What is Financial Forecasting?

Financial forecasting is an essential tool in business management that involves estimating or predicting your small business's future financial outcomes. A delicate art that combines historical data, current market trends, and informed assumptions to predict future revenues, expenses, and financial needs; forecasting is a critical aspect of strategic planning to generate insights that can help you make data-driven decisions for your small business, secure external funding, create effective budgets, maintain healthy cash flow and more.

Unlike financial modelling, which is more comprehensive and involves creating an abstract representation of a business's financial situation, financial forecasting focuses specifically on predicting future financial performance and outcomes. It also differs from budgeting, which focuses on allocating resources based on these financial forecasts. 

Types of Financial Forecasting

Financial forecasting methods typically fall into two primary categories: quantitative or qualitative.

  • Quantitative Financial Forecasting: Also known as statistical forecasting, these methods rely heavily on numerical data. They use historical financial information to predict future outcomes. For example, a company might analyse sales from the previous year with historical growth rates to forecast sales for the upcoming year, assuming similar market conditions. This method is often preferred for its objectivity and concrete base on measurable data.
  • Qualitative Financial Forecasting: These methods are less about complex numbers and more about subjective factors such as expert opinions, market trends, and other non-quantifiable information. They are handy when past data may not be a reliable predictor of the future, such as in new markets or for new products. For instance, a company entering a new market might use expert opinions and market research to forecast sales rather than historical sales data.

Both have their place as powerful tools in a holistic approach to small business financial planning, offering different lenses through which to view potential future financial scenarios.

Financial Forecasting vs Budgeting

It's important to distinguish financial forecasting from budgeting. Financial forecasting is about predicting future financial performance, while budgeting is the process of planning how to best manage the business's future financial resources based on these predictions. 

For example, if a financial forecast predicts an increase in revenue, the budgeting process would involve deciding how to allocate this additional revenue—whether it be reinvesting it into the business, increasing marketing spend, or saving for future investments.

Budgeting is a more detailed process that involves allocating specific amounts to different areas of the business. It's a plan for how to spend money, while forecasting is a prediction of how much money will be available to spend. Both are crucial for effective financial management but serve different purposes.

The Benefits of Financial Forecasting

Financial forecasting is an indispensable tool for any small business, offering a roadmap for future financial planning. By predicting financial outcomes based on current and historical data, you can make informed decisions, anticipate future trends, effectively allocate resources and prepare for potential challenges. Here are some key benefits:

  • Informed Decision Making: Financial forecasting provides valuable insights into future revenue, expenses, and cash flow, enabling businesses to make strategic decisions about investments, expansions, and resource allocation.
  • Risk Management: By anticipating financial shortfalls and identifying potential risks, you can better devise strategies to mitigate them before they become critical issues.
  • Resource Optimisation: Forecasting helps your business to allocate resources more efficiently, ensuring that funds are available and well allocated for essential operations and growth opportunities.
  • Goal Setting and Performance Monitoring: Setting realistic financial goals becomes much easier with accurate forecasts. Businesses can also track their performance against these forecasts, adjusting strategies to meet their objectives.
  • Investor and Stakeholder Confidence: A well-founded financial forecast can boost confidence among investors and stakeholders, clearly presenting your business and demonstrating your strategic planning capabilities.
  • Cash Flow Management: The lifeblood of any small business - effective forecasting enables you to manage your cash flow more effectively, ensuring you have the funds needed to cover upcoming expenses and investments.

A critical component of strategic planning, financial forecasting provides your business with the clarity and confidence needed to navigate the future successfully.

Thriday customer
Thriday customer

Financial Forecasting with Thriday

Now that we understand the importance of financial forecasting let's explore how you can start easily creating financial forecasts for your small business:

Introducing Thriday: Your All-in-One Financial Management Solution

Thriday is a comprehensive platform revolutionising how small businesses handle their finances. By integrating banking*, accounting, and forecasting into one seamless experience, Thriday offers a unique solution that automates and simplifies the entire financial process for small business owners. 

Here's how Thriday is changing the game for small business owners in Australia:

  • Effortless Bank Account Integration: With Thriday, your business banking* and accounting are effortlessly combined in one user-friendly platform to keep everything in perfect sync. Every transaction from your Thriday business transaction accounts* is automatically captured and accounted for, ensuring your financial data is always accurate and up-to-date.
  • AI-Driven Automated Accounting: Say goodbye to manual data entry and reconciliation. With all your financial data in one place, Thriday then harnesses the power of AI to categorise and analyse your transactions, generating key financial statements, tax summaries, forecasts and more - all in real-time and continuously updated as transactions occur.
  • Simplified Financial Reporting: Thriday automatically compiles comprehensive financial reports, including cash flow statements, income statements, and balance sheets - saving time and providing a clear view of your business's financial health, enabling better data-driven decision-making.
  • Proactive Financial Management: With features like automated receipt reconciliation and lightning lodgment, Thriday makes it easy to manage receipts, prepare for tax season, and submit business activity statements (BAS) directly to the ATO in minutes from within the app.

Standing out as a next-generation all-in-one financial management platform, Thriday combines business banking* with the power of AI-driven automated accounting in one user-friendly interface to automate and simplify the entire process. 

Eliminating the need for manual data reconciliation and designed to intimately understand your business's financial activities, seamless integration of banking* and accounting in the same platform means Thriday can automatically track and categorise your business's income and expenses, reconciling all your transactions and financial data to provide a real-time view of your cash flow at all times – both in the present and projected into the future.

Simply run your business as usual with your Thriday business transaction accounts* and let the power of automated accounting take care of the rest! 

Cash Flow Projections with Thriday

Cash flow is the heartbeat of every small business - making cash flow projection one of the most crucial elements for safeguarding the financial health of any enterprise.

Thriday's seamless integration of banking* and accounting in the same platform enables you to benefit from automatically generated cash flow statements and projections that are constantly updated in real-time as you make transactions, alongside all your other key financial statements, using automation to eliminate the financial admin associated with forecasting and financial report generation. 

The platform's holistic combination of automated accounting with your business banking* means that all transactions are instantly reflected in your cash flow projection - allowing you to see not just a clear picture of your current financial status but also a forecast of your financial future, transforming the previously complex task of cash flow projection into a streamlined, automated process. 

As a small business owner, with Thriday's cash flow projection, you are provided with a clear, concise, and continuously updated view of your financial trajectory to proactively identify trends and patterns in your cash flow, highlighting potential issues before they become problematic and enabling you to focus more on running your business and less on the intricacies of financial forecasting.

Tax Forecasting with Thriday

Tax forecasting is another essential component of financial planning, enabling your small businesses to correctly anticipate tax liabilities and manage your resources accordingly. Thriday's innovative platform takes tax forecasting to the next level by leveraging AI-driven automated accounting, which simplifies the process of estimating future tax obligations based on current financial data.

Carefully designed to give Australian small business owners peace of mind, Thriday automatically calculates GST, payroll tax, and other relevant taxes to update tax summaries and forecasts in real time as new transactions occur. This means you can always have an up-to-date view of your expected tax liabilities well in advance of tax deadlines, allowing for better cash flow management and strategic financial planning.

Thriday also simplifies the preparation of business activity statements (BAS) and other tax reports. With all financial data automatically tracked and reconciled, generating reports for tax purposes becomes a straightforward task, significantly reducing the time and effort traditionally associated with tax reporting.

More than just a tool for predicting tax liabilities, Thriday is a comprehensive solution built to support proactive tax management and strategic financial planning, automating the complex process of tax forecasting so you can focus on running your business secure in the knowledge that your tax affairs are in order and your financial future is clear.

Thriday tax forecasting
Thriday tax forecasting

5 Steps to Create a Financial Forecast

Our recommendation is to leverage the power of simple, user-friendly platforms like Thriday to anticipate future financial outcomes and make informed decisions for your small business. But if you do want to go it alone, here are the five essential steps to guide you through the process of creating a financial forecast:

  1. Gather Historical Data: The foundation of any financial forecast is historical data. This includes past sales figures, expenses, cash flow statements, income statements, and balance sheets. Analysing this data helps in understanding trends, seasonal patterns, and growth rates. For new businesses without much historical data, industry benchmarks, and market research can serve as a starting point.
  2. Identify Key Assumptions: The next step involves identifying the assumptions that will drive your forecast. These assumptions could be about market conditions, growth rates, pricing strategies, or changes in operating expenses. It's important to base these assumptions on realistic and informed expectations. For instance, if you plan to launch a new product, your assumptions might include expected sales volumes based on market research.
  3. Create Revenue Projections: Using the historical data and your key assumptions, start projecting your future revenues. This involves estimating the sales you expect to achieve in the forecast period. Be realistic and consider factors like market trends, competition, and your business's capacity. If you have multiple revenue streams, forecast each one separately before combining them for a total revenue projection.
  4. Estimate Expenses: Just as you forecast revenue, you also need to project future expenses. This includes fixed costs like rent and salaries and variable costs like materials and marketing expenses. Some expenses may increase as your business grows, so factor in these changes. Remember to include one-time expenses, such as the cost of acquiring new equipment or technology upgrades.
  5. Prepare Cash Flow, Income, and Balance Sheet Projections: The final step is to bring together your revenue and expense projections to create a projected cash flow statement, income statement, and balance sheet. The cash flow projection shows how cash is expected to flow in and out of your business, helping you anticipate future cash needs. The income statement provides an estimate of profitability, and the balance sheet gives a projected view of your business's financial position at the end of the forecast period.

Throughout this process, it's crucial to regularly review and adjust your forecasts. External factors such as economic shifts, changes in the competitive landscape, or unexpected market trends can impact your business, necessitating adjustments to your projections. Regularly updating your financial forecast ensures it remains a relevant and valuable tool for decision-making.

Ultimately, financial forecasting is not a one-time activity but an ongoing process that requires a good understanding of your business, the market and the ability to make informed assumptions. By following these steps, you can create a robust financial forecast that helps navigate the future with greater confidence and clarity.

Embracing the Future: Forecasting Made Easy With Thriday

Navigating the complexities of financial forecasting can be a significant challenge for small business owners everywhere. However, with Thriday's innovative platform, the way you approach financial forecasting is transformed - offering a streamlined, automated solution that integrates seamlessly with your business operations to make forecasting not just manageable but a strategic advantage.

By leveraging Thriday's all-in-one financial management system, you can automate the tedious tasks of data entry, transaction categorisation, and financial report generation. This not only saves valuable time but also provides you with accurate, real-time insights into your business's financial health. With Thriday, you gain the clarity and confidence to make informed decisions, plan for the future, and focus on what you do best – running your business.

Thriday empowers you to embrace the future of financial management, where forecasting is simplified and strategic planning is easily informed by data-driven insights. Take the next step with Thriday and unlock the full potential of your business's financial forecasting capabilities!

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360  AFSL 241167 (Regional Australia Bank).  Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you.

Why waste time on financial admin when Thriday can do it for you?

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