In our latest weekly blog series we’re interviewing our Co-Founder Susan Richards, FCPA, FCMA to provide our readers with financial tips and tricks to help businesses and startups succeed.
What are 3 tips for financial forecasting during uncertainty?
A financial model is only as good as the assumptions that are built into it. Here are 3 tips to help forecast when the future of the economy is uncertain.
Tip #1: Make sure you are not oversimplifying your assumptions. Instead of just ball-parking sales from clients, break it down into number of units sold, average price per unit (which would take into consideration any COVID-related discounting that you may need to consider) as well as how long it is expected for the client to actually pay.
Tip #2: Break down your forecast into months. As we have all seen in 2020 a lot can change in a quarter or a year so by setting out your forecast by month you are able to update assumptions frequently and improve upon relevance.
Tip #3: Export your year-to-date history from your accounting software to set the basis for your model. This will enable you to more easily compare forecast to actual because you won’t have to translate line items. If you don’t know what I’m talking about ask your bookkeeper to give you a Year-To-Date Income Statement in excel and then take it from there.