Why Forecasting is Important for Franchise Owners

Why Forecasting is Important for Franchise Owners

Are you a franchise owner, ready to take your business’s financial management to the next level? Understanding the unique financial requirements required for franchisees, like fees, loans, taxes and legal compliance, was just the beginning – and we know you have that covered.


But let’s talk specifics regarding financial reporting – digging into financial statement analysis, forecasting, and why it’s important for franchise owners like you.


Financial Statement Analysis


You can analyze your franchise’s financial performance and value by examining your financial statements to gain an accurate picture of your profitability and financial stability.


Why is financial statement analysis important?


These financial statements -the balance sheet, income statement, and cash flow statement – are used to manage your franchise’s operations and to provide transparency to your stakeholders.


  • Balance Sheet: The balance sheet shows what your business owns (assets), owes (liabilities), and the investment by shareholders (equity) at any given period of time. In other words, it showcases your business’s financial position.


    • It can help determine if a business has enough cash to operate, what types of assets it owns, if it is under-capitalized, has too much short-term debt, or if the owner is wasting funds from its working capital.


  • Income Statement: This statement shows your revenues, expenses, and profits or losses over a period of time. Ultimately, it delivers insights into how efficient operations are and your franchise’s gains.


    • It can reveal whether there is enough gross profit to cover expenses, whether the business is incurring losses, and whether the business owner is investing in expanding the business. By analyzing income statements over time, one can identify trends, good and bad months or quarters, and use this information to develop a plan for the future.


  • Cash Flow: The cash flow statement reveals how shifts in balance sheet accounts and income affect cash and cash equivalents, ultimately helping franchise owners gauge the financial health of their open locations.


    • This analysis is broken down into operating, investing, and financing activities.


What is Forecasting?


Think of forecasting as the process of predicting your business’s future financial performance by analyzing past and present data, along with marketplace trends. It helps in estimating the potential revenue that your business can generate in a particular period and plan for significant expenses in the long term.


Businesses conduct a few different types of financial forecasting that are all important in their own right, with varying purposes. Forecasting cash flow, in particular, is often highlighted in significance because a franchise’s success often hinges on it.


Cash flow forecasting: This is the process of estimating how much money is coming in for your franchise and how much is going out during a specific period of time. This can be done using either a direct method based on actual cash flow or an indirect method based on net income and accrual entries adjusted for cash flow.


Quick notes regarding cash flow forecasting:

  • Best regarding short-term accuracy
  • Helps with budgeting and predicting future balances
  • Pinpoints the need for additional funding
  • Helps determine if cash flow obligations were met
  • Provides clarity regarding cash inflows and outflows


Why is forecasting important in general?


Well, we’ve got a few reasons why… It facilitates future planning and helps you make informed business decisions, such as potential growth opportunities, while preventing unexpected tax bills. Plus, accurate forecasting can help maintain your business’s stability during uncertain times and seize opportunities during periods of growth.


Pro Tip! Are you trying to make moves and grow your franchise? Lenders and investors rely heavily on financial forecasts while evaluating a loan investment opportunity. Forecasts form an integral part of business planning, operations, and funding as they help leaders and outsiders understand the potential growth trajectory and profitability of the business.


Ceterus As Your Solution


We offer comprehensive financial insights along with top-of-the-line accounting and tax prep services.


With our tech-enabled software and a dedicated financial controller, you’ll receive help with your financial planning in the form of:

  • Timely and accurate financial reporting
  • Performance management, including benchmarking
  • Dedicated financial consultations
  • And so much more!


Don’t wait for the next time you need help understanding your financial statements to set expectations with lenders and investors or forecast your growth for future investment opportunities. Schedule a consultation with us today!

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