What’s The Point Of Financial Forecasting?
Where will your business be in five years’ time? Surveying the wreckage that 2020 has left in its wake, it’s understandable why you might shrug and say: “Absolutely no idea.”
But knowing where your business is going is crucial to its success. Here’s why every good startup deserves a forecast.
Everyone wants to know what happens next
You know that feeling when you can’t even wait for the credits to roll before you’re frantically clicking the Next Episode button? That’s how you want your investors to feel when you tell them the story of your business.
And that’s what your financial forecast is: a story. It’s the story of how you will go from making nothing at all – or even making a loss – to making serious money. You might not know exactly how the story ends (or, if you like, what the season finale is going to be). But as every good showrunner knows, you need to tell your audience something tangible about where the story is going and why they should care right from the start.
“It is better to be vaguely right than exactly wrong”
So said philosopher and logician Carveth Read back in 1920, and it’s still true.
Many founders avoid making financial predictions because they’re worried about getting the numbers wrong three months down the line.
But that’s better than having no numbers at all. Your financial model should just be about having a few key assumptions which you can explain to investors. These assumptions may change three to six months down the line, and that’s normal. You can never be completely right – so don’t let the perfect be the enemy of the good.
You don’t have to be a finance genius
Today entrepreneurs learn by doing: here are just a few. These days, starting a business is incredibly accessible. You don’t need an expensive MBA to do it. Likewise, you don’t need a finance background to put together a simple or complex forecast. Everything you need to know is on the internet somewhere. (Or just use Canaree, of course.) You don’t have to love numbers to do it, and most of us don’t particularly like it. But ‘it’s too difficult’ just isn’t an excuse anymore.
It will help you understand your business better
To truly know your business, you’ve got to know the numbers. The conversations you have during that process – with investors, colleagues, mentors – will empower you. The process of coming up with your forecast is a vital learning experience in its own right. It will help you spot weaknesses and opportunities, and spark ideas.
Financial forecasting software has moved on
Creating a financial forecast is both easier and more complex than it was over the past few years. All sorts of data made instantly available at your fingertips, in real-time.
Think sales patterns, incomings and outgoings, performance metrics, runway and more.
This opens up endless possibilities, but also a fear of complexities. Founders and entrepreneurs must identify the right data, then capture and analyse that data.
Fast-growing startups require tools beyond spreadsheets to effectively gather, model and consume key information to share with investors. WIth Canaree, you gain the ability to automatically collect all the financial and operational data and KPIs in a controlled environment - where teams and stakeholders can access the same data set - and with our dynamic modelling tool equipped with a smart view, speeds up the process so everyone’s on the same page in an instant.
Want to raise your game? Take control of your financial forecasting in real-time with our dynamic modelling software equipped with an intuitive dashboard and easy-to-use integrated reporting with automated advice that keeps you on track. Startup founders and entrepreneurs can quickly and easily produce forecasts, models, what-if scenarios and generate shareable reports with a few taps of your fingertips. Discover Canaree today.
You may also enjoy reading Why a financial projection slide is vital for your startup pitch deck