Have you ever found yourself looking for a crystal ball before making a business decision; wanting to know how a change is going to impact your other business activities and cash flow? Visibility over short term cash flow from month to month is important for most businesses, especially those having to manage a timing mismatch between receipts and outgoings, but this visibility is also commonly sought after when making strategic decisions such as whether to take on a significant project, buy a new piece of equipment, or hire new employees.
The traditional financial information is based on the historical performance of your business, last year or last quarter or last month. Unfortunately, this is of limited use when you’re trying to assess the viability or funding requirements for capitalising on a business opportunity to invest in new assets, pitch for a big contract, or acquire a business. This can present a problem, in that the traditional accounting systems that produce a profit and loss and balance sheet just don’t provide the information required to help you make your decision, which is sometimes referred to as an information gap.
Fortunately, there is a discipline called "Predictive Accounting” that can provide you with information to fill this 'information' gap. The purpose of Predictive Accounting is to provide you with a decision model that can be changed for varying inputs, so that you can understand the financial risks of the opportunity and better manage them if you make the decision to invest, pitch or acquire.
Hanrick Curran has been working in the Predictive Accounting space for many years, largely by developing bespoke sophisticated Microsoft Excel™ models. These days there are far more efficient ways to generate forecasts that business owners can use as a decision making tool.
In our experience, clients who use a predictive model make much more informed financial decisions, and therefore have more successful businesses. Of course predictive models are based on a set of assumptions that may prove inaccurate in the fullness of time but, as time draws closer to the period being forecast, the assumptions can be adjusted. These models provide you with an opportunity to review the outcomes in conservative and ambitious assumption scenarios before you make your decision, which provides some crystal ball benefits. In addition, once you have the model you can update the assumptions at any point, (based on current circumstances), and continue to predict outcomes and fine-tune actions and behaviours to keep things on track.
You don’t require a team of in-house management accountants to stay on top of business performance and future performance trends. We can assist you to design meaningful models specific to your business, and then meet with you on a regular basis to keep performance on track with set targets.
If you would like to benefit from the foresight gained by using Predictive Accounting to support better business results in 2015/16, talk to your usual Hanrick Curran adviser, or call 07 3218 3900 and ask for Matthew Beasley, Tony Hunt or Matthew Green.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.