There’s a long checklist that a new business owner has to consider before the doors can finally be opened. It’s an exciting time that is filled with anticipation. Some things on that checklist, however, can fill a business owner with trepidation and unfortunately filling out a financial forecast sometimes falls into this category.
Small business owners need to be able to plan ahead if they want their business to be a success not just at the start of the business but for many years to come. The financial forecast takes many things under consideration that will help not only in the beginning but each year. A business owner will have to think ahead and come up with a projected financial statement. These financial statements must include realistic projected profits as well as any expected borrowing.
As the year(s) go on the business owner can track where the business is with regards to where he thought it would be on the financial forecast. Since the economic environment of the business world can change month to month, a business needs to be prepared if it ever needs financial assistance. If the business needs a bank loan or help from venture capitalists at any time they will request this forecast.
Working with a company to help build a financial forecast will help take any and all adjustments into account and will be able to create several forecasts. Sometimes, a small business only needs to project out one year and as the business becomes more profitable, they may want to project out five years.
The forecasted financial plan will include the financial statement, a cash budget and finally, the budget sheet. The financial statement will include a sales plan that will calculate any business expenses to determine the business’ predicted profit.
The cash budget for a small business is not simply about when they will turn a profit and how much money they will have 1 or even 5 years out. It is about how much money they will have for future operating costs. Day to day operation costs and any foreseeable issues that may arise should be included.
The balance sheet will show any changes regarding profit and expenditures in the firm after a few years. This is a work in progress and as the business grows this will be reflected in the balance sheet. Some items will remain the same year after year but many items will need to be adjusted.
In any economy it is very difficult to be able to forecast finances and in a volatile market, such as we have today, it can be downright daunting. This is one area where asking for help is a great way for a small business to start off on the right financial footing. We offer outsourced accounting services that include benchmarking to understand your competition and business landscape to come up with dashboards and KPIs that indicate financial health. Good financial forecasting ensures all the I’s are dotted and the T’s crossed.