Digital presence has become crucial for every business. As a result, agencies have become the need of the hour and are amongst the most trending industries nowadays. However how many agencies prepare a financial forecast?
These digital agencies provide various digital marketing and advertising solutions. To name a few are Online Reputation Management (ORM), Search Engine Optimisation (SEO), Social Media Marketing (SMM), Online advertising, e-commerce, web designing and others.
A competitive market
Even though this is a specialised field, there exists cut-throat competition which makes it hard to excel in the game. This is where using smart tools can make all the difference! Tools such as financial forecasts and budgets can help plan out the path to reach your goal faster.
A lot of digital agencies have approached us with these questions, so here we will lay out the importance of financial forecasts for digital agencies. Also, check out how it differs from a budget, its different types, and how you can use it to grow your digital agency business safely. Read on to learn more and take your digital agency to new heights.
Budgeting v/s forecasting
It is a common misconception that budgeting and financial forecasting are the same concepts/ Well, that’s only partly true. Budgeting and financial forecasting can be referred to as two sides of the same coin.
Budgeting involves setting down the business’ goals, targets, and where it sees itself in a certain amount of time, while a financial forecast states the expectation of the actual result based on real data and trends. A budget is what you’d like to happen, and a forecast is a prediction of what might actually happen. The right financial forecast can help grow your business multifold.
Five ways using financial forecasting can help grow your business
Here’s how to grow your business through financial forecasting:
- Financial forecasts help you understand your business and its current financial position. This, in turn, can help you make the right decisions to increase future profits and success.
- Such forecasts can help you anticipate and analyse your needs for the future. For instance, a sales forecast can predict how much supply you might need to cover demand. You can then plan your workforce accordingly.
- Financial forecasts can also help bring potential investors on board and access finance. The forecasts for sales and revenue are often based on your past track records and future opportunities for the business. Positive revenue forecasts can convince investors that your business is worth their money and attention and that they will get the returns they are looking for.
- These financial forecasts can also act as the foundation to prepare detailed budgets and goals for your business. Generally, the budget is prepared to keep utopian goals in mind for the business, which may turn obsolete with time and the ever-changing business environment. The varying market realities might make these pre-set goals impractical. These can potentially hinder the growth of the business. This is where studying financial forecasts can help reassess your business goals and make them more realistic and easier to attain.
- Above all, financial forecasts can prepare for future contingencies. They help to overcome recessions and slumps that are a part of the normal business cycle. By studying them thoroughly, you can make smarter decisions to stay afloat in such testing times.
Types of financial forecasts
There are three key forecasting statements you should be familiar with:
1. Profit and loss forecast
2. Cash flow forecast
3. Balance sheet forecast
The profit and loss forecast identifies future revenue and expenses. The cash flow forecast provides insight on cash moving in and out of the business. Finally, the balance sheet forecast predicts future assets and liabilities.
The advent of technology has made the heart-beat of marketing and advertising digital. Even financial forecasting is now done better through a variety of software and apps. Some well-known software applications include Fluidly, Float and Futrli.
These applications use current and historical data from your finance system, such as Xero to create a draft forecast. The intelligent software can quickly generate detailed 3-way forecasts to predict future results.
There are three steps you need to follow when preparing a forecast:
- Review your past financial data and expected future income and expenses. You’ll need to decide whether to use forecasting software or a traditional method such as a spreadsheet.
- Decide how you’ll make projections. Besides past records, there’s other data you can draw on to make your projections more accurate such as future opportunities and events.
- Pour a coffee, crunch your weekly or monthly numbers and plan for some different scenarios
How we can help?
We realise that all of this information can seem very intimidating to anyone just entering the field of digital business. But fear not, for we can help you! Here at Accounting Inc., we offer more services than just digital accounting to create big results for small businesses.
We also offer various tools and help that you may require in taking your business off from the ground and taking it up — then, the sky is the limit! Why not find out just how much we can give your business a real advantage? We assure you that you won’t face disappointment. Contact us and book yourself a free consultation with us today!