Building your financial forecast

 Reasons why you should have a financial forecast:
 

• Avoid surprises on cash
• Establish how much working capital you need
• Raise finance
• Understand the financial implications of your plans
• Facilitate the sale of the business
   

Your financial forecast will not just satisfy your immediate needs but, done right, will be an invaluable financial tool for the future. That’s why I use a methodology developed from years of working in first class organisations.
 

A clear objective
 

Understand why we are building the forecast model. Does it need to be complex or simple? Will it need to be flexible and address different scenarios?
 

Key input data to drive the model
 

There will be key assumptions that will drive the model. We will spend time establishing what these are so that the model achieves the objective.
 

Effective design
 

The model will then be designed including proforma input and output sheets that will be presented to the client for sign-off.

The design will most likely:

• Include integration of the profit and loss, balance sheet and cash flow forecasts.
• Forecast for up to 5 years on a month by month basis.
• Include summary results and present the information in an easy to read dashboard      format.
• Show the effects of changes in key assumptions for income and costs.
   

The model will be designed to allow for you to operate it if you wish. It will incorporate built-in controls to retain integrity and have clearly marked input fields on an input worksheet to minimise data corruption.
 

Model build
 

Now that we know what the model looks like and the client has agreed, we can build the model. We will extract the necessary historical financial and non-financial data from the systems and through enquiry so that the model can be built around real data.
 

Client review and evaluation
 

Once built, the model is presented to the client for feedback and refinement.
 

Fixed price
 

The amendments following the client presentation are incorporated and the working model is handed over.