Assumptions are an important and necessary part of financial planning and modeling. Your familiarity and knowledge of the green industry and your business will progress as time goes on, and this will improve the accuracy of your assumptions. You should have justifiable reasons to back up any assumptions made.
Many businesses run into issues when too many assumptions are made regarding decisions around hiring, estimating, pricing, and assets. To limit guessing and excessive or inaccurate assumptions, below are a few points to consider:
Its great to be optimistic about the future of your business, but an unrealistic assumption could be worse than no assumption at all! Making strategic changes to your business doesn’t happen overnight. Be conservative in the initial periods when forecasting any implemented changes to your company. Take into account the time needed to ramp up or execute the plan.
Every company is different, base your decisions specifically on your company
You don’t have access to your competitor’s financial reports, and it could be possible that they are not making sustainable profits. This is why you shouldn’t base your decisions solely on what your competitors or friends within the industry are doing. Every company optimizes in different ways. Build assumptions and scenarios based on your strengths, not your competitor’s strengths.
Having access to timely and accurate financial reports is the key to making most business decisions. This data can be used to support assumptions made as well.
Take into account current market factors
Industry-wide recruiting struggles, inflation, supply chain constraints, and increased expenses are all examples of items to take into account when making assumptions.
Communicate with your team
Your team may hold the answer to questions that will make for more accurate assumptions. Whether its your frontline team members or management, keep open lines of communication.
As part of our cash-flow forecasts at Cycle CPA, we build in scenarios and assumptions to allow for a review and analysis of any potential decision. A solid bookkeeping and accounting foundation within your business will help to bring validity to your gut feeling of what may need to change in your business. Turn your guesstimating into a strategic model tying in your financials!