Did you know that only ⅔ of new businesses survive the first two years? After five years that number drops to half. The most common cause of business failure is the management making common financial forecasting mistakes.
That way, your new business has the best possible chance of surviving. Let’s get started!
In this article
Mistake #1: Failing to Maintain a Budget
When you fail to maintain a budget you’re relying on guesswork for all of your financial decisions. You have no quantitative evidence on whether your business is doing poorly or well.
You can prevent this by making an accurate budget on at least a quarterly basis. Ideally, you should be going over clear profit and loss statements monthly.
Doing this will eliminate all guesswork from money management and allow you to forecast your changing cash flow.
Mistake #2: Not Defining Goals
Often financial goals for new businesses are binary. Either you succeed or you fail. However, this method of binary thinking doesn’t leave much wiggle room for the nuances of business.
The reality is that your financial goals might take time or strategy to reach. So, don’t think in such black-and-white terms. Create long-term financial goals and share them with your employees. These goals should become part of your team culture.
Mistake #3: Overestimating Growth
Just because things are going well in one quarter doesn’t guarantee that they’ll be that way next quarter. And, overestimating your personal finances is a sure way to land yourself in hot water.
So, be realistic when you forecast your financial growth. Underestimate where you can so that way any changes to your growth don’t take you by surprise.
How Do You Avoid These Financial Forecasting Mistakes?
The best way to avoid these mistakes is to implement three-way financial forecasting. These types of finance use your profit & loss statements, your balance sheets, and your cash flow to gauge your financial health.
More importantly, it lets you know how your financial decisions will affect business performance. Make sure to check out this guide if you want to learn more about this type of financial forecasting.
Want More Content? Keep Reading
We hope this article helped you learn some of the common financial forecasting mistakes that new entrepreneurs make. However, remember that it’s not enough to just know about these mistakes.
If you’re serious about avoiding them, you’ll make sure to implement strategies to avoid them. That way, your business has the best possible chance of making it past five years.
Do you not want this article to end? We don’t blame you. Luckily, there are hundreds more that you can check out by continuing to explore our site. So, get started!