Introducing Financial Forecasting
In this new series of articles, I’m going to be explaining how to get the most out of Brixx – and also introduce some basic concepts in financial planning along the way.
To start with, I need to let you in on a secret.
Financial forecasting is not as difficult as it seems.
No need to keep it to yourself though. Tell everyone. There’ll be more, better businesses.
Like most of the seemingly complex business disciplines, forecasting seems complex because it’s not something most people do, day-to-day. It’s seen as the realm of finance experts, professional planners who have the tools and experience to put together financial plans.
And there are experts like this out there. But you don’t need to be one of them to plan your own business or financial venture. In this series, I’m going to be giving bitesize tips on how to start out modelling your business in Brixx – our forecasting app made for exactly this purpose.
What is financial forecasting?
What do you think of when I say “forecast”?
Outside of the context of this article, I’d bet you’d think of weather forecasting. And what is weather forecasting (your experience may vary outside of the UK…) but incredibly, demonstrably unreliable!? But while we often feel the weather forecast ‘gets it wrong’, more often than not, it gets it right.
Weather is a complex system, and none of it is under our direct control. A business is under far more direct control, resulting in what can be very realistic forecasts.
I use the term ‘realistic’ because ‘accuracy’ isn’t guaranteed at all in a financial forecast – and nor is total accuracy the purpose of financial forecasting. A financial model will never match up 100% to the real world.
Forecasts are based on both known facts – the bills and the running costs of the business for example, and estimates of sales based on either previous sales data or market research.
The aims of financial forecasting are to:
- Make sure the business is viable!
- Predict seasonality, cash shortfall or otherwise unexpected costs.
- Understand the financial ‘picture’ of the business.
- Test the outcomes of different actions, projects or strategies.
- Compare the business forecast to reality and understand any differences.
- Use all of this information to decide on the best course of action for the future.
An admirable but intimidating list. Which leads me onto the next point…
Dealing with financial planning’s image problem
The 6 points I described above are important for every business – and businesses owe it to themselves to ensure they plan effectively for the future. Livelihoods, dreams and future prosperity can literally depend upon it. Cash flow forecasting, in particular, can make or break businesses.
So why isn’t financial planning given the focus it deserves by many businesses?
Part of it an image problem. Finance has a reputation as being a difficult, labyrinthine and frankly, boring subject. To top it off, not everybody is a whizz with spreadsheets, and even the best spreadsheets can still be unwieldy and prone to hidden errors.
We built Brixx to meet these challenges, and to help business owners and experts alike quickly build flexible financial models of their businesses. And hopefully – make planning enjoyable!
How does Brixx help with financial forecasting?
Brixx is a financial forecasting app designed to be simple to use and highly flexible.
Most planning apps are tailored for accountants and require specialist knowledge to get started. Brixx takes a ‘business first, accounting second’ approach, encouraging you to think about the real-world activities of your business first and let Brixx do the financial heavy lifting to build your forecast.
We built Brixx to help provide quick, easy answers to forecasting questions. Unlike spreadsheets, which quickly become complicated and error-prone when you try to make sweeping changes, Brixx’s calculations are contained in discrete ‘components’, each of which is a template for a type of financial action – like taking out a loan, selling a product, or paying salaries.
These components can be rearranged, moved on a timeline, and enabled or disabled to test different situations. This flexibility, though it seems simple, is technically had to achieve, which is why you won’t find it in other applications.
The Brixx plans you build calculate financial dashboards, cash flow, balance sheet and profit & loss, overheads and product reports. In the next articles, I’ll discuss each of these, as well as how to plan different aspects of your business.
If you want to get stuck into Brixx straight away, here’s a guide to starting your plan in 3 simple steps.