Your forecast report can help your business save thousands, and throughout this article, we will discuss various ways to take advantage of this important aspect of business analytics.
Forecasting is the process in which companies estimate future sales revenue, costs, and other metrics the managers or owners may be interested in. Many small businesses choose not to spend time or money on producing forecasting reports as it is an additional expense.
However, without a forecast report to gauge performance, a business may not know if its revenues and costs for a specified period are acceptable.
Predicting future revenue and costs is one of the most helpful exercises a business can perform for a number of reasons. First, a forecast report allows the company to determine if certain services or products should be offered.
For example, if a plumber forecasts that there will be little demand for services relating to shower or bathtub installations, the company can focus its resources on other projects such as outcall services. If a company does not have a forecast report available, there is a high probability that it would spend resources in areas that generate less revenue than other areas on a dollar-to-dollar basis.
Another reason to produce forecast reports is to help develop a more accurate business budget. Budgets help businesses to control costs, estimate revenues, and decide how to allocate resources based on what the budget allows.
For example, if a company forecasts revenue of $200,000 for the upcoming year, the business can then budget the $200,000 in various ways to maximize profit.
Finally, forecasting gives the company data necessary to make decisions on purchases, scheduling, and other business decisions. Without the forecast report, the business might incur unnecessary or excessive expenses which would reduce profits or even result in losses.
The simplest way to create a forecast report is to look at revenue and expense reports from previous years. Data from previous years can be one of the most valuable resources a company has when developing budgets and forecast reports.
For example, if the company has access to four years worth of reports, the company can take an average of those years to project revenues and costs for the upcoming year. The major appeal of this forecasting method is that it can be done quickly at almost no cost.
Another method is to use computer programs such as Excel, Quickbooks Online, or Xero to generate forecast reports. These programs use existing data and can be customized based on various inputs.
Now that we have discussed why forecast reports are important as well as methods to produce forecasts, it would be helpful to go over suggestions that will help your business save time and money when creating forecast reports.
The first suggestion is to develop forecast reports for proper time periods.
For example, if your business operates on a yearly budget, yearly forecasts will be most helpful. Once a yearly forecast has been created, it is always a good idea to keep track of how the forecast is performing against actual results. The accounting manager or bookkeeper can compare actual costs against forecast costs and produce a report that tells the manager or owner whether costs are in line with the forecast or adjustments need to be made.
This practice allows the business to identify potential problems much more quickly than simply looking at the forecast at the end of the year.
Another suggestion is to keep the method as simple as possible when first creating forecasts. Adding multiple inputs into your forecast model at the beginning could create unnecessary confusion and frustration.
The main goal of forecast reports is to give the business a way to save thousands of dollars per year by keeping expenses and revenues in line with the forecast or budget. Creating inaccurate forecasts based on faulty methods may cause the business to lose control of costs and lead to lost profits or losses.
Once the business is able to produce basic forecasts efficiently and effectively, more inputs can be added to make the report more sophisticated.
We hope this short introduction to forecasting reports has been helpful. The main ideas to remember are that developing forecast reports can not only help a business control costs but also provide direction on how the company should allocate resources to save thousands of dollars per year through forecasting.
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