Creating A Financial Forecast For Your New Business
Creating a favorable financial forecast is imperative. Of course, all companies start with putting together a solid business plan. However, once you have done this you then need to determine how you can make the most money. After all, isn’t this is what all businesses want?
Moreover, if you are looking for a lender or a potential investor, your financial projections are exactly what they are going to be interested in.
Putting together a financial forecast is definitely one of the first things any new CEO should do. As respected businessman Jozef Opdeweegh CEO explains, the first two weeks in a new business are critical. Getting started without a financial forecast could be a disaster.
It is definitely advisable to work alongside a quality chartered accountant when putting your forecast together. Nevertheless, let’s take a look at how you go about putting together a financial projection.
What costs are associated with running your business?
First and foremost, you need to have a clear view of the costs that are involved with starting up your business, as well as any on-going expenses. This is something that you are likely to have done through the business planning process. It is vital to have a thorough understanding of all of your outgoings.
Potential start-up costs include rent, lawyer fees, website design, down payment on a property, down payment on equipment, registration expenses, and utility installation fees. You then have on-going fees, which are operating expenses. Examples include association fees, certification fees, raw materials, office supplies, storage, salaries, rent, utilities, phone services, and Internet subscription.
Cash flow projection
Now you have a clear view of all of your outgoings and their frequency, now you need to begin the process of cash flow projection. This involves putting together an invoice statement, which will help you to project profit/loss for the first year of operation. In the beginning, it is advisable to do your projections on a monthly basis. Once you move into your second year you may want to move to quarterly projections.
Your accountant will help you to put together an income statement as part of the fixed fee accountancy service you are paying for. Nonetheless, this involves using an interactive spreadsheet, where you will fill in all of your basic information. The spreadsheet will automatically do the calculations you require. You will then have a clear picture of potential profit or loss on a monthly basis for the year ahead.
Creating a balance sheet
Last but not least, the final step in the process is creating a balance sheet. A balance sheet basically gives you a snapshot of your business’s financial overview. It should include your liabilities and your current assets. Your liabilities are essentially the money you owe. This can be anything from taxes, to accounts payable, to salaries. Your current assets relate to anything from fixed assets, to money owed and accounts receivable, to product inventory, to cash on hand. This can also include personal savings. By presenting both your assets and your liabilities you will be able to get a true reflection of your company’s financial position.
Some further financial tips for startups…
Now you know how to put together an effective financial forecast for your startup business, let’s take a look at some other tips that can assist you financially. This includes the following:
Establish financial goals
Make sure you pay yourself
Focus on acquiring customers
Make sure every minute of your time has monetary value
Remain optimistic but ensure you are prepared for the worst
Limit your fixed expenses in the beginning
Monitor and track all of your spending
Remember cash flow management is key
When it comes to cash flow management, one of the things you need to do is get your invoices out quickly so you can encourage people to pay you on time.
All in all, hopefully, you now have a better understanding of how to create a favorable financial forecast. It can seem like a lot to take into account, especially if you do not have any experience, but it is a critical part of the process when it comes to running a new business. Follow the tips above and do not be afraid to ask for assistance if required.
This post was done in collaboration and may contain affiliate links.
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