By Emeka Anaeto
Even though there has been considerable improvement in the appreciation of the peculiar nature of small & medium enterprise, SMEs, in terms of standard operating procedures, SOPs, most banks expect the small business owner to operate a semblance of formalization in their business approach.
For the purpose of the topic of this discussion one of the SOPs a bank would require of any company that intends to access its business loan is the presentation of a credible budget, which includes a financial forecast.
A budget and financial forecast assist you to meet your business goals. They are a future prediction of your business finances.
Your bank would like to see the potentials of your business in terms of sustainability and growth, especially, its ability to generate enough cash to repay whatever loan that may be advanced to it. In other words, the bank wants to see the future of your business.
Predicting the financial future of your business is not easy, especially if you’re starting a business and don’t have a trading history. However, forecasting and making adjustments frequently will enable you to become more accurate.
So beyond whatever the bank may require it is in the interest of the business and the owner to see the future with a view to both motivate action today and navigate tomorrow’s challenges.
Monthly or weekly forecasts may be necessary when starting your business, experiencing rapid growth, or having financial difficulties. Regular forecasts allow you to closely monitor your finances and develop strategies to fix problems before they become major issues.
Monthly or quarterly forecasts may be more appropriate for a stable, established business. Off course you will need to establish an annual budget which is a build-up of all the weekly, monthly and quarterly forecasts.
Next week we look into the detailed content of a typical financial forecast.