Small Business Forecasting | The Downfall Of Silicon Valley Bank & How To Avoid The Same Fate

Mastering Financial Management: 3 Tips to Forecast and Grow Your Small Business

In today's episode, we will be discussing the three best tips to forecasting and growing your small business through robust financial management. We will also touch on the bankruptcy of Silicon Valley Bank, which collapsed due to poor forecasting and cash flow management.

Silicon Valley Bank was one of the top 20 banks in the US and had secured investment or bonds of treasuries from the US, paying them a low-interest rate. With rising interest rates, the bank's deposit holders asked for a higher return, but the bank was earning less than it was paying, resulting in a mismanagement of cash flow. Here are the three tips to ensure that you do not suffer the same fate as Silicon Valley Bank:

1. Start with accurate data: It is essential to use historical data and extrapolate it into the future to build a map of what may or may not happen. Your assumptions will be flawed if you start with incorrect information. Ensure that your bookkeeping, payroll, accounting, and accounting software are correctly inputted and reconciled to accurately reflect your business's performance today.
2. Build multiple scenarios: Forecasting is both a mathematical science and art. You want to build three scenarios - a downside scenario, a stable scenario, and a positive scenario, to give you clear indications of where your business is going from the worst case to the best case.
3. Use an easy-to-maintain method: It would help if you had a method that is easy to use, maintain, and not cumbersome, such as an Excel spreadsheet, to accurately depict each level of your forecast. As your business grows, you may add more complexity, and you may need to hire someone to help you.

In conclusion, forecasting and cash flow management are crucial to the success of any small business. Accurate data, multiple scenarios, and easy-to-maintain methods are essential to ensure that your business grows and prospers. Silicon Valley Bank's bankruptcy is a clear example of the importance of proper forecasting and cash flow management. Take heed of these tips to ensure that you do not suffer the same fate.