While many of our calendars are flooded with parties and holiday shopping, if you own a business you probably have several additional projects you need to complete. One task that should certainly be on your list is preparing financial forecasts.
Financial forecasts can help your business over the holiday season prepare in many ways: from ensuring your shelves are properly stocked to anticipating additional employees that need to be hired.
In the following article, we will discuss some of the ways financial forecasts have helped business owners during the busiest time of the year. While for some the holiday season is a slower time, these reports can still be equally as helpful in understanding the year behind and planning ahead.
What is a Financial Forecast?
Before we get into the many benefits, it is first going to be important to define what a financial forecast is and how it can help your business. A financial forecast is a report generated using historical data to anticipate what will happen in the future.
For businesses with seasonal highs and lows, this important information can help you plan and budget accordingly.
Note that meaningful financial forecasts are predicated on sufficient historical data. That does not mean that start-ups shouldn’t follow the exercise of preparing financial forecasts, but they need to be aware that outcomes are forecasted with a lesser degree of certainty.
How Financial Forecasts Can Help Your Business Over The Holiday Season
Create A Budget
One of the biggest benefits of developing a financial forecast is the information it provides around budgeting. If prior data concludes your revenues increase by 10% over the holiday season, decision-makers may feel more confident allowing for additional funding to their marketing or inventory expenses in anticipation of the holiday season.
For example, if in Year 1 you put $10,000 towards marketing and saw an increase in revenue of around 10%, you may consider increasing your marketing expenses to compare the return on your investment.
While increasing your marketing budget may come with a bit of risk, you have historical data to feel more confident in an ROI of at least 10%.
Plan For Additional Capital
As we discussed at the start of this article, the holidays can be a busy time for everyone, especially for some seasonal businesses. This means you may need another set of hands to keep operations running smoothly.
Whether it’s additional employees, financing, or supplies, you may need to make some upfront investments to meet the demands of the holiday season. With financial forecasts you can anticipate:
- Labor demands
- Cash Flow
- Inventory Turnover
- Raw materials, supplies, and equipment needs
- And many other recurring needs of your business
Rather than making assumptions about what needs to be prepared for the holiday season, financial forecasts can provide you with numbers that help you save money and make the most out of your investment.
For example, if you sell products you will want to make sure you have sufficient inventory to meet the demands throughout the whole holiday season. Simultaneously, you also want to make sure you do not have so much inventory that you are left with packed shelves and empty pockets at the end of the season. This is where financial forecasting comes in.
While financial forecasts can provide us with plenty of information to help us plan and anticipate results, there are some limitations. There is no anticipating some events that are out of our control. The global pandemic and the governmental response that ensued has had a devastating and lingering effect on the economy.
While you are aware of periods that are traditionally slower times for your business, maybe those seasons that generally brought in high sales aren’t what they used to be. All of that information and much more is stored in your historical data; understanding how and why the current situation is different can help significantly. While your business may not be fully recovered from the pandemic, understanding your financial forecasts can provide insights into your future outlook.
For this reason, we recommend working alongside your accountant to consider all factors that go into your financial forecast reports.
While we are not quite in the holiday season just yet, now is the perfect time for business owners to plan for the upcoming year. For many seasonal businesses, the holiday season is where they can recoup losses from the year and end the year strong.
If your business is anticipating a busy holiday season, consider reaching out. Helping our clients build financial forecasts that create successful holiday seasons is just one way we help businesses thrive.