We Are Never, Ever, Ever…Getting Our Forecast Together
We don’t even like saying “tax season.” It is not a season. It is a little annual funeral for your money and your joy. It conjures the image of beleaguered accountants at desks in poor lighting, working through piles of regret stained with bad coffee. Like it or not, 2023 is gone and you will not be reunited. Tax season is all about looking back. What happened last year? Where did I put that statement? Should I have bought that...?
Is there anything we can do to break free from this compliance misery? The good news is: Yes. You can focus your attention on looking ahead with a great financial forecast for your business. But if your idea of a forecast is to increase sales by "X" % over the prior year, you need to think much deeper. To be effective, a true forecast must be based on clear and well thought out assumptions based on your experience, your data, and expected market conditions. It is your up-to-the-minute business plan, expressed in numbers, and it describes what you expect to achieve in your business over the next year, or two, or three.
Your forecast should ask and answer questions like: Where do your sales come from? Which customers will increase (which ones will decrease)? Why? How? When? What’s going on with your cost of materials and your cost of labor? What’s happening with your operating expenses? And what about cash flow? How do you know you won’t run out of cash when you need it most? What if inflation spikes again? What if interest rates rise again?
Don’t be afraid. These are good, healthy, positive questions that you can answer with proper guidance and a concentrated effort. Consult your trusted accountant or business advisor. Too many people – including most business owners – think that an accountant’s job is to calculate and report your tax liability from last year. But that’s only one small part, and that’s history. Focus more of your attention to what lies ahead, because those are the things you can control. A great advisor knows that what really matters is happening today and will happen tomorrow and going forward.
Control, in the form of having a realistic plan, feels good. Knowing where you are going, and how you intend to get there, is empowering. Once January 1 comes around, you officially can’t do anything about the prior year, and you can’t do much to change your tax situation. You can, however, start taking the steps and making the changes needed to ensure that you achieve success as you define it. Also, keep this in mind: having a robust business forecast also means that your trusted advisor will be equipped to help you plan ahead for that dreaded tax season before it arrives.
In our next post, we will explore some specific ways that you can work with your advisor to ensure your business forecast is the story you want to tell.