Providing Accurate Financial Forecasts for Clients

When a client applies for a loan, is considering a merger, or wants to implement a new offering, you may be asked to help with forecasting. As a Pennsylvania CPA or accountant, you are a critical partner in the success of your clients’ businesses and can give them the direction they need to succeed. Accurate financial forecasting and projections are key components of success.

Simply put, forecasts and projections are the core financial statements – balance sheet, income statement, and cash flow statement – projected into the future. There is a subtle difference between the two, however, and they have different purposes.

A financial forecast presents, based on the best knowledge of all parties, the expected financial position of the business at some future date, given the company’s history and the expected market and economic conditions during the time period. This is useful for both bank loans and investors.

A financial projection is similar to a forecast except that it shows expected financial results under hypothetical conditions – for instance, a merger, new product offering, or expected change in the market or economy.

As with any client and any service offering, you must be clear on your costs. If this is a niche area of accounting that you would like to build into your practice, you may want to consider creating a service package for forecasting or projection, with clearly defined services, requirements, and timeframes. If you don’t have a package at this time, explain your expectations, your rate, your availability, and the types of documents you will need from the company.

If this is already your client, you should be able to provide forecasting or projection with relative ease, since you have experience with the client, trust that the books are clean and accurate, and have an existing relationship with the necessary staff at the company, from whom you will need additional information.

If the business is not an existing client, you will have much more work to do. If the company has been working with another accountant who has been providing financials, you may want to inquire as to why they are changing. Alternatively, the financials may have been produced internally by a non-accountant. In either case, you should request key documents for the previous few years and give them a thorough review for accuracy before assuming the financial history you have been given is accurate. A client who has let his financials go and has not kept good records will require even more work.

All this should be discussed with a new client, indicating the increased time required to ensure accuracy. You are under no obligation to take on a client if you are not comfortable that you will be able to ensure financial accuracy, and the client may balk at the cost. It’s important for you to be comfortable with the client and for the client to be comfortable with you.

If the company is planning a significant change – adding a product or expanding into a new market, for instance – have a detailed conversation with the client in order to get a thorough understanding of the expansion opportunity, given the current operation. The projections will answer questions like: How long until it turns a profit? Will we have the cash on hand to support it until we are profitable in this area? Do we need to make any changes to our plan? Explain assumptions and risks, and share with your client how they impact forecasts. Provide detailed reports and explanations of each.

The value of forecasts and projections is not limited merely to when your client is looking for a loan or planning a big change. These types of financial statements should be part of every company’s financial services, because they provide valuable information that determines if the company is making wise business choices or needs to make adjustments.

By creating a forecasting package, you have a great opportunity to reach out to your existing business clients and discuss the value of looking ahead and planning for success. This type of service will expand your practice, strengthen your relationship with your clients, and help them become more successful.