Establish Financial Forecasts – Why?
Financial Forecasts – Before creating a company, it is common to make financial forecasts, if only to check that its business model holds up. This practice does not stop at the beginning since it continues throughout the company’s life. Suppose it is often a question, at the beginning, of checking the project’s viability. In that case, the financial forecasts allow you to consider your investments and make your strategic decisions throughout the company’s life.
The financial forecast remains a way to preview the impact of your recruitment plan marketing strategy and know your cost structure. The primary objective remains to transcribe the perception of your product or your market into figures.
What are the procedures to put in place?
To carry out your financial forecast, you can proceed by applying a simple but always effective method, that is to say, provide answers to the following three questions: Is the project profitable? Cash-wise, is it solvent? Is it sufficiently funded? For your financial forecasts to have a real interest, it recommends assessing the three areas of study: the project’s profitability, the solvency of the project, and the financing of the project.
To make your financial forecasts, you can start with your sales. It’s about subdividing them into categories because you probably won’t have just one product/service, and they will have different margins. This information will allow you to know the most profitable products and analyze your sales afterwards and compare the resources allocated to determine elements such as your margin or your ROI on campaigns.
The next step is to think about your costs and list them. Some are recurring and monthly or even quarterly, such as costs related to the internet, your premises, salaries, charges, etc. Others can be punctual, such as accommodation, often paid for once a year.
Your Income Statement, the heart of your Forecasts
Above all, the income statement allows you to determine the profitability of your project with reliable and net results that take all the costs and sales at a given time. The concepts of balance sheets or income statements may seem vague at first but will quickly become familiar to you even if it remains difficult to master at first.
The realization of the income statement is essential because it is the strategic element in the eyes of investors and yourself to know your profitability. The income statement calculation is the subtraction between income and expenses. These can classify into two categories, namely variable costs and fixed costs. In the income statement analysis, we do not consider investments that have no impact on the profitability of projects such as computers.
Your Cash Plan, a Compass
You will know the solvency of your business once you have calculated the cash flow plan. It is not because you earn money overall that your cash flow will hold up! If you pay your suppliers faster than your customers pay you, you can quickly find yourself short of cash even if your business is profitable in the event of a rapid increase in orders.
Cash is above all the difference between receipt and disbursement. It should note that receipt links to turnover and disbursement to charges and investments. Therefore, the cash plan is equivalent to your company’s monthly bank account, including VAT. Consequently, it should be divided by month and should give you an overview of your cash flow at the beginning and end of the month.
Your Financing Plan, your Needs
The purpose of calculating the financing plan is to determine the financial soundness of your project. By doing this calculation, not only will you have an assurance of funding credibility. But you will have proof that there is a marked improvement in your financial strength.
To do this, differentiate between resources and needs. Examples of financial resources include social capital, current account and grants. As far as essentials are disturbed, we can cite investment, working capital, and operational needs. By performing the calculations in these three areas, you establish the financial forecast.
A few Tips to Follow
You have to remain lucid when making these calculations since the purpose of this study is to prove that your turnover is higher than your expenses. So, it would benefit if you kept your optimism low to keep all your predictions realistic.
Do not hesitate to go into the details of your calculation method as this will make them more reliable. Try to highlight the heaviest expenses by comparing each payment to the turnover. Make your account easier to read so that investors have confidence in you. For this, you can use intermediate management balances (SIG). If necessary, do not hesitate to ask for help from business creation professionals or even a future accountant to understand the mechanism.
Also Read: 8 Tips for Making a Slogan – Business Knowledge Today 2022
Review Establish Financial Forecasts – Why?.