You must have heard some big brands unexpectedly crashed into walls. Numerous healthy businesses out of the blue started falling. Several companies start losing their customers abruptly. Some businesses don’t even take off properly before they collapse. Have you wondered why this happens? What’s the reason behind these failures? So, let us introduce you to the one which is the reason behind all these stoppages- a business without a financial forecast or it could be a poor financial forecast.
It is necessarily important for any business to have a good business planning before it leaves the ground. All the more, it must have a clear financial projection for next few years from the start. Financial forecasts assist you in managing the finances. They are a future prediction of your business finances, as compared with the statements, which provides details of actual progress and results.
A successful business owner relies on a forecast to develop a business strategy. In this globally competitive environment, a business must adjust its strategy constantly. One way to address this competition is that owners/managers must predict what will happen tomorrow. Businesses, who accurately forecast, advance ahead while the ones that don’t fall behind.
Financial forecasts include-
Whether you are starting from the scratch or purchasing an existing business, you have to look forward to the start-up costs and deliberately have to analyze the expenses. Startup costs include but are not limited to-
- Legal or accounting fees
- Insurance costs
- Furniture, equipment, supplies or fit-out
- Staff wages
- Leasing cost of properties
It is one of the most important aspects that has to be calculated very effectively. The projections for sales value could be a tricky task to do. If you are starting a new business, your base for the estimates could be the market research. And if you are an existing business then your previous sales could serve the need.
The two methods to forecast sales include-
- Unit Sales- Number of units sold x Price
- Margin Sales- (Total Cost of Stock x Markup / 100) + Total Cost of Stock
If you only focus on the sales without having the knowledge of your expenses then you are burning out your own pocket. Expenses forecast estimates your ongoing operational costs over a period of time. Expenses may include all the startup costs as well as the monthly wages and other costs. In order to get ahead of the game, your business plan must minimize your expenses as much as possible.
The Cost of Goods Sold (COGS) is the amount needed to produce or stock your products if you selling the same. You are required to get an apparent estimate of COGS before you set up the prices of your products. The COGS forecast relates directly to sales forecast.
The estimate includes the costs of-
- Wholesale rate of purchasing raw materials, completed goods or parts
- Freight and freight insurance
- Commissions paid on sales
- Labor costs
A cash flow forecast includes the amount of money you expect to flow in and out of your business. This includes the projected expenses and incomes. It is very important to analyze and project it carefully as the annual profit and losses depend on it. This helps you to make right decisions for your business.
In order to get your bangs out of the buck, businesses require top-class financial planners. A good financial advisor will nurture all the loops and holes and predict your business’s financials in the approved manner. Also, a world class financial planner like Infocrest can bail out any company through its proved and accurate financial forecasting.