We have discussed the significance of financial forecasting and how financial forecasts for new companies may be developed. This week, we will talk about how to use your financial forecasts as a strategic asset.
What is a strategic asset?
Business know-how is a good example of a strategic asset since it is unique, valuable, hard to come by, and heavily focused on business. The essence or core of the business model, to put it simply, consists of things like intellectual property, customer connections, organisational culture, proprietary business processesand brand value to mention a few.
Starting by reviewing the fundamentals before delving into the processes involved in transforming your financial forecasts into a strategic asset is crucial.
It is also important to keep in mind that a financial forecast is a future estimate based on past data and current business performance.
The financial standing of the company must be fully understood in order to assess business performance. You may do this by looking at your cash flow statement, balance sheet, and profit and loss statement.
On the basis of past data, forecasting may be used to monitor business performance and support decision-making in the future. As a result, it necessitates taking a strategic look at what the future could hold utilising knowledge from the past.
A prediction, unlike financial statements, is mostly predicated on conjecture. So, while making a forecast, one must be reasonable.
Determine the key drivers on your forecast. Drivers are behaviours or inputs that have the potential to affect the company's operations and finances.
Identifying your key drivers
The existence of essential or key drivers, either internally or externally, is a distinctive feature of any company, regardless of its industry. They have the potential to have an impact, whether positive or negative, on the cash flow of the business.
Some key drivers include:
Production rate
The volume of product and/ services
Plans for growth within the company
Environmental/Industry factors
Like every strategy in a company, the process of creating a financial forecast consists of planning the forecast, creating it, and executing it. Next week, we will start our “How to” series by talking about how to create a financial forecast.
If you need help to construct a financial forecast, please email us at enquiries@ovacgroup.com