Creating an effective financial forecast is vital. Of course all companies start by putting together a solid business plan. However, once you have done this you then need to determine how you can actually make money. After all, isn’t this what all businesses want? Moreover, if you are looking for a lender or a potential investor, your financial projections provide the information they are going to be most interested in. It is definitely advisable to work alongside your accountant when putting your forecast together. Here is some essential advice from a north london accountant on how to go about putting together a financial projection.
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 throughout 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 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, advertising costs, storage, salaries, rent, utilities, phone services and Internet subscriptions.
When you have a clear view of all of your outgoings and their frequency 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 and if you have negotiated a fixed fee accounting service then the cost of this should be included in the fixed fee you are paying. This involves using an interactive spreadsheet, supplied by your accountant, 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.
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 in 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.
Hopefully you now have a better understanding of how to create an effective financial forecast. Even if you entrust your accountant with all the work it is still important for every business owner to know what projections entail if you are to grow your business successfully.