Why financial forecasting is crucial – especially when trading in Europe

financial planning

Financial forecasting works to support your business in several ways. Primarily, it makes planning for cash shortages and investments more straightforward. A robust plan can also inform your decision-making processes, making it easier to stay on track when it comes to achieving revenue targets and forming future growth strategies.

Building resilience into your business plan

Financial forecasting lets you spot shortfalls in your bank balance before they occur. That ensures you avoid making late payments to debtors and employees. Just one issue of this type can quickly cause your business to lose suppliers and the trust of team members. By knowing of a problem in advance, you can think about other possible outcomes, such as reigning in your expenditure or borrowing to get you through a difficult month. Most businesses have a cash crisis at one time or another, but those which predict the upcoming storm and take action are more likely to survive.

Dealing with profits in the most effective way

It’s not just about dealing with worst-case scenarios; financial plans are also a useful tool when business is booming. The cash forecasting solutions from Perativ can help you assess how much money is needed in order to keep your branches and ATMs supplied. Their service ensures your customers are never disappointed and therefore remain loyal. Once that side of your business is in order, surplus cash can be put to use repaying loans, diversifying, or reinvesting in the company. By knowing when this additional cash will be available, you can plan what to do with it in a more considered way. Moreover, you can check that your revenue goals are on track at profitable times.

Identify and monitor overdue payments

Overdue invoices that drag on into a second or third month can soon create problems, especially for small and medium-sized businesses. A forecast pushes you to note how quickly your customers are paying and understand how it is affecting your monthly profits. One or two late payers are easy to chase, but if the problem is escalating, you could require more substantial credit control. You may need to establish regular points of contact with clients, or add further payment options to your currently accepted methods, or incentivize early settlements. 

Reassure investors with regular forecasting

Banks and other investors in your business don’t get to see how things are run on a day to day basis. Therefore, to feel confident in your success, they are likely to require regular financial forecasts. When your reports are clear and comprehensive, it gives them clarity on what kind of risk you represent. By including the most optimistic, middling and worst-case predictions for your company, you’ll be helping to build liability and trust between your lender and your business. The benefits of a more open relationship are manifold, but mainly it means that if you need to raise funds in future, the process should be less complex.

Cash flow forecasting to safeguard your business in Europe

Unless you are an expert in foreign currency exchange, it can be hard to manage the risks associated with international payments. Planning is vital if a business is to weather exchange rate fluctuations and make a profit on the European market. It is a challenge to create a solid cash forecast that takes into account possible increases or decreases in currency values. However, there are ways to tackle uncertainty around what the yield will be from specific deals. 

Start by identifying the hazards

Just one unforeseen foreign exchange deal can substantially reduce your bottom line. As exchange rates change rapidly, it makes sense to choose your moment carefully when it comes to concluding a transaction that involves a foreign currency. Similarly, when you find a bank that offers a low fee to complete a currency transfer, always be sure to check the exchange rate they are offering. Otherwise, even the best deals can come to nothing.

Create a bespoke financial forecast

Standard financial planning is unlikely to include a scheme for dealing with foreign currency, but if that’s the direction your business is headed, then you’ll need to be prepared. Factor in contracts that fix the rate for the transactions you have planned, so your forecast can be more accurate. You can also employ a hedging strategy that involves purchasing options or futures on the currency market in question. These will minimize the risk of price movements slicing into your profits and give you more control over your future financial position.

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