For most people, checking your business’s finances means looking at the current numbers and determining whether or not you think you are on the right track to reach your goals. While your current finances are helpful, they won’t be much help in determining your future.
Instead, you should look back at how you performed over the past month/quarter/year/etc. This information will serve as a point of reference for creating:
A detailed budget
A breakdown of sales goals
A cash flow forecast
Once these are created, you can start focusing on a more forward-thinking financial system that keeps your business goals on the top of your priority list.
Most of Us Stop at Looking Back
Dwelling on the past is ill-advised in many situations, but when it comes to your finances, the past can provide valuable insight into your future. Your past records will show things like:
How much you’ve made
How much you’ve spent
How much cash you have in the bank
It’s common for a small business owner to turn away from this information thinking it can’t help them prepare for the future, however, that is a big mistake. With all of this information, you can create a comparison to your current finances and use them as a baseline for where you hope your finances will go.
Creating a financial system that leans on this information will help you set forward-looking business standards for the next 1, 2, 5 years.
3 Ways to Build a Forward-Looking Financial System
Create a Detailed Budget
A budget is the foundation of a forward-looking financial system. It sets the tone for what you expect to be spending for the year ahead. To create a good budget, you’ll need to turn to your past financials (especially previous income and expenses) as a point of reference. From there you can make the needed adjustments and factor in the big purchases you are expecting. The more details you include in your budget the more helpful and accurate it will be.
It will also be beneficial to create multiple budget scenarios to prepare yourself in case of a change in the market. You should have budgets prepared for a good, bad, and neutral economy. That way if something happens, you’ll have a plan to adjust accordingly and still reach your goals.
Break Down Sales Goals
Start by creating an overarching sales goal. This goal should cover the entire year ahead.
As an example, let’s say you’d like to grow by 20% within the next year. Once you’ve set that goal, the next step is to break down your sales goal so you can achieve it by completing more reasonable and achievable tasks.
To determine these mini-goals, ask yourself questions like:
How many more leads do I need to reach my goal?
Do I need to hire additional staff to get me to where I need to be?
How many sales do I need to make each month to be on track for the rest of the year?
Once you’ve set these mini-goals, you can break them down even further to create a month-to-month sales plan. Focus on some key performance indicators, like conversion rate and return on ad spend, to keep you in the loop with the data behind your attempt at your goals. With the help of your KPIs, you’ll stay on track with your month-to-month goals and won’t be scrambling at year’s end to reach your goals.
Create a Cash Flow Forecast
Once you’ve created a budget based on your past financials and future expenses and broken down sales goals to smaller, more manageable monthly goals, your next task is to create a cash flow forecast. This is the definition of forward-thinking as it gives a detailed snapshot of the future.
Your cash flow forecast includes all of the money coming into your business and all of the money going out. A healthy cash flow is the goal, so forecasting a good cash flow is an essential aspect of creating a forward-looking financial system. While there is a chance your forecast may not go exactly as planned, by combining your budget and sales projections you will have a pretty good idea of what to expect in the future.
Speed Up the Future with an Accounting Partner
While looking back on your past financials may not be your favorite activity, it is necessary to create the tools you need to drive your business forward. Tools like a detailed budget, broken down sales goals, and a cash flow forecast will set you up for future success.
If you don’t have the time to relive the past and plan for the future, turn to SIMPLY Financials PLUS. We will track your current financials and help build a forward-looking financial system to get your business where you want to be.