Calling all small business owners! It’s the season for many entrepreneurs to start taking on year-end accounting tasks. The year-end process often includes creating financial forecasts for the upcoming fiscal year and making long-term financial projections. Business owners can build a research-based business plan for long-term prosperity by reviewing their revenue, expenses, and the cost of goods sold against marketing trends through the years.
This forward-thinking accounting concept is called small business forecasting, which is a very effective way to use past financial data to make reasonable projections for the future. If done correctly, financial forecasting is a valuable tool to make sure your company is prepared to withstand economic highs and lows. Not factoring pro forma financial statements and forecasting into your accounting processes can lead to many unnecessary mistakes that could be detrimental to your business growth.
Here are three mistakes that can be avoided with accurate financial forecasting:
1. Inaccurate Taxes
When it comes to tax season, filing as a small business owner can be daunting enough as it is, which is why there are valuable accounting software programs like QuickBooks available to keep you on the right track. QuickBooks Online lets you input and view all of your business’s balance sheets, income statements, cash flow, and more, all on one dashboard. Having this data in place can help inform your financial forecasting, and better prepare you for tax time.
Financial forecasting can help you create a business budget that accounts for unexpected expenses and opportunities to save money in other areas. By analyzing past reports, you can account for taxes more accurately with future projections.
2. Unexpected Losses
The right forecast system will help you avoid an unexpected financial hit. When you utilize accounting software to analyze your past financials, you can help your business prevent trouble in the event of a recession or industry slump. Financial forecasting uses your business’s historic accounting reports to identify trends for gains and losses, so you will know how much to budget for these unforeseen incidentals.
3. Cashflow Errors
Keeping track of where your money goes each fiscal year helps you secure your small business’s financial future. Financial forecasting is a proactive way to establish and calculate your business’s cash flow accurately, which is not only beneficial for year-end accounting but also helps avoid cash flow errors down the line. Knowing where your money needs to go now and in the future will give you peace of mind when life throws unpredictable curveballs at your business’s financial stability.
Plan for Your Financial Future
Neglecting to consider your business’s financial future is a mistake that can lead business owners to close their doors for good. With the help of a Chartered Professional Accountant, you can learn the proper steps to creating pro forma statements that outline your income statements, balance sheets, and cash flow reports. This crucial step can help you plan for the future with realistic financial projections that consider historical data and current market trends.
Accounting Services for Small Businesses in Edmonton
Understanding financial forecasting for your small business can take time, patience, and attention to detail. After all, running a successful business begins with a proper understanding of how the money moves through your business annually from year to year. The economy is constantly ebbing and flowing, which is why it is crucial to practice financial forecasting so you can be prepared with a balanced budget and contingency plans.
If you are ready to protect your business financials with intuitive, evidence-based forecasting, we encourage you to work with a professional CPA. Schwan & Associates is Edmonton’s trusted small business accounting firm ready to help you understand your financials. Request a call with our experienced team of accountants to learn more today.