7 Ways to Improve Your Client’s Financial Forecasts

As an accountant, one of the most important ways to help your clients achieve business success is by developing robust financial forecasts. Financial forecasting is the process of estimating the future financial performance of a business by using past financial data, current trends and economic conditions and combining this with financial modelling to determine predictions for the future revenue and expenses of a business. Regular financial forecasts allow clients to monitor their business performance and develop strategies to help with;

  • Strategic decision making
  • Planning for the future
  • Avoiding unexpected costs
  • Identifying risks
  • Recognising opportunities for growth
  • Highlighting required adjustments to business operations  
  • Evaluating performance

Financial forecasts can be challenging, and we discuss 7 simple things accountants can do to improve financial forecasts so their clients can gain valuable insights and make informed strategic decisions.

What’s the Difference Between a Budget and a Forecast?

Many accountants are very familiar with budgets, but there is sometimes confusion about how a budget differs from a forecast. Budgeting and forecasting are valuable advisory services accountants provide to their clients. The difference between a budget and a forecast essentially comes down to their purpose. A forecast is focused on the bigger picture, making predictions and looking at the long term growth and goals of businesses. In contrast, a budget provides a detailed plan of what is expected to be achieved during a financial period and focuses on managing operations and setting expenditure limits.

Improving Your Client’s Financial Forecasts

Take time to understand your client’s business and goals

Do your due diligence and research your client’s business to understand their current financial position and industry conditions. Pay attention to trends in the industry and how they impact the clients business. Consider whether the sector is experiencing growth or decline, how your client is positioned within it and the competitive landscape.

You will also need to understand their key business drivers and what they hope to achieve in the short and long term. It’s also important to be aware of any potential risks or challenges that might impact their business.

Use software designed for forecasting

When it comes to creating a financial forecast, using software specifically designed for this purpose can be extremely helpful. There are many different easy-to-use options available, and the good news is that many of these can integrate with leading accounting software such as MYOB, Xero and Quickbooks. This allows easy extraction of financial data when developing the forecast.

Forecasting software will save you time by avoiding spending hours going through financial reports and data manually to identify trends. The software can perform calculations and financial modelling in seconds, freeing up your time to analyse the results and communicate them with the client. The software will also reduce the risk of errors in the data and lead to better decision making. You will also be able to readily evaluate different scenarios and examine how they might impact the clients business.

Communicate regularly with your client

Having excellent commutation is critical to developing and maintaining a good relationship with your clients. Regular communication leads to a more productive relationship with your client and enables you to gain deeper insight into their business needs and improve the accuracy of their forecasts. It is also essential to communicate regularly to understand changing circumstances that need to be reflected in forecasts and ensure that your clients have the most up-to-date information possible when making decisions and are prepared for any potential challenges. In addition, it builds trust between you and your client so that when they need advice or help again in the future, they know they can rely on you.

Present financial information clearly and concisely

Your clients are busy people, so they don’t want to spend much of their time reading through long reports full of complex financial jargon. It is therefore essential to present your findings clearly and concisely. Ensure your reports and presentations are easy to understand and highlight any key points that your clients need to know.

Use accurate and timely data

Forecasts are of little value if they are based on outdated or inaccurate information. When developing your forecast, it is critical to utilise the most recent accounting data and consider up to date economic and market conditions and trends. You may also need to check the accuracy of the source data by reviewing the client’s records or asking them for clarification if there is any uncertainty over what they have provided you.

Outdated or inaccurate data could lead to an unreliable prediction about the future and cause problems for your clients down the line when they need to make critical decisions based on this information.

Understand costs associated with growth

When forecasting the costs associated with your client’s business growth, make sure you cover all bases. The client may have made plans for the future expansion of their business, but this does not necessarily mean that they have considered all the associated costs. It is essential to be aware of any potential hidden costs which could impact profitability and cash flow in the long term. This may include the cost of hiring new staff, purchasing new equipment, facilities and office space, investing in marketing initiatives, research costs, legal fees, insurances, product development costs, and borrowing costs.

Review and Update the forecast

While the budget will generally remain a static plan for a specified period, a forecast is a live document that will change as new information comes to light. As such, you must regularly review the forecast and update it where necessary so that your client has the relevant information. You will need to use your professional judgement to understand when the forecast should be adjusted in light of changed circumstances or performance variances and when you need to investigate and work with the client to adapt their business processes.

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