Mistakes That Happen During Financial Forecasting
Making financial forecasts should be part of your general business planning. Be it a cash flow forecast or a loss account one, it should be considered in business planning. Making the financial estimation is supposed to be a frequent activity. Having them occasionally done helps in making plans for the future regarding expenditure, money necessities, revenues, and growth. It is also important to have them for third parties who have interest in your business. This could be a bank that requires an updated forecast when deciding on whether to give you a loan for your business. There are however some errors that occur in the process of constructing financial forecasts by some businesses
Failure to include all the expected expenditure and income projected. This occurs especially when preparing the profit and loss account forecast. It is required that you take enough time to think through the expenditure your business is projected to undergo. Common expenses usually missed out include car tax, car insurance, and other non-monthly items. Lack of inclusion of some expenses and income can form a false image of the business. This could also be embarrassing if a third party highlights that you have missed out certain items.
There are business owners that make the mistake of including sale invoices and expense invoices that have not been paid. This is a common mistake since a cash flow forecast should only detail anticipated cash and bank movements. Expected one-off payments like tax or money for buying equipment not included is considered a mistake. It is important to indicate the money you have incurred in payments when indicating money that is expected to be earned as well as bank movements.
It is a common error to overestimate sales that you will make and underestimate expenditure one will undergo. Being too much optimistic is a mistake, and usually it is not allowed to happen in financial forecast. Banks and other money lenders can easily pick the errors out and can have doubts about your ability to judge. As a result, this makes them lack confidence in you. To that end, making a financial forecast should be balanced on having a good expectation and a bad one
Some business owners lack neatness and proper presentation. Untidiness is observed in papers that are not well numbered and printing that has not been properly done. The financial forecasts should be laid out properly since they will be supplied to a third party. Well-presented forecasts sell the business to the parties receiving them. However, financial estimations that are not properly presented reduces confidence for your business.