After speaking with numerous stakeholders such as banks and investors about the quality of forecasts and management information they receive, the following challenges have been identified:
- Business assumptions are often poorly documented – making it difficult to provide constructive input;
- Forecasts do not adequately address changing business risks – taking up time to understand the resilience of the underlying business model;
- Management information packs are not fit for purpose – impeding the ability to have robust business performance discussions.
Yet, high quality cashflow forecasts and management information packs do matter. Here are five ways they could make a real difference to your business.
1. Strengthening internal management alignment
Establishing a consistent approach to forecasting and making it a ‘business as usual’ process strengthens internal cohesion and clarity, keeping managers focused on the right areas when investing in products and services.
2. Building business resilience
We live in uncertain times politically, economically and environmentally. Although it is never possible to foretell the future, management teams can consider possible scenarios and how these might affect the business. Forecasts can be adjusted for new assumptions to identify potential cashflow pressure points – a form of risk management that helps to make the business more resilient.
3. Increasing business understanding
Internal changes in the business can also affect future performance. Management information packs that identify key performance indicators (KPIs) and highlight when performance falls below critical thresholds enable proactive action to address any weaknesses. KPIs also give you reasons to celebrate when things are on target, such as achieving a stretch goal for recurring revenues in a new market.
4. Generating evidence of sound management processes
Generating timely, effective cashflow forecasts also builds up a track record of sound processes being applied. Banks, investors and potential acquirers will all take comfort from the fact that the business has been run using sound information for a period of time.
5. Supporting a managed business closure
Some management teams may be looking to close down all or part of a business in response to market changes. If temporary funding is required to manage the winding down process, this can be identified and action taken in good time.
Cashflow forecasting is a vital component of business planning – and plays a key role in providing management teams with insight into future issues that might arise. Taking advice and having an objective view from experts who can review your forecasts through an investor or funder lens can add real value and contribute to your commercial objectives.