A Series Of Equal Cash Flows Is A N Reinforce Your Business Plan With Sound Financial Projections

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Reinforce Your Business Plan With Sound Financial Projections

As strange as it may seem, financial forecasting is more important and complex than actual results. Planning is more important than just statistics. Or stated again, it is the means to the end that is more important than the end here.

Without a financial forecast, a business is like being in the dark without a lamp and a map, and you won’t be able to win the trust of investors or get financing. Even if you are self-funded, or have a family-run business, you need financial forecasts as a guide and barometer to measure your company’s performance.

You have to consider these steps to arrive at yours Financial forecasting:

Develop your 3-5 year sales forecast: You can base your forecast on past sales data, competitive comparisons, and current financial trends. Usually it’s a mix of everyone and you have to realize that your alternative lenders won’t trust you anyway! We all want to believe that our sales are going to skyrocket but remember that your investors will hold you accountable in the future. Remember that if you need more capital 3 years from now, the same investors are a great source of more cash but they will measure your current progress against your initial estimate.

Prepare an expense budget: This includes costs for the cost of your goods, but also your operational costs such as equipment, salaries, rent, marketing, insurance, depreciation, etc. Generally after estimating cost of goods, we then break down operating expenses such as: sales and marketing, administrative and then research and development or miscellaneous. production costs.

Imagine a cash flow statement: It refers to the cash flow of your business and reveals your liquidity or ability to use cash when needed. (And important to lenders, the ability to pay them back!) A cash flow statement is important to investors and lenders because they want to make sure your business plan has enough cash to keep operating.

Prepare your income forecast: It refers to your financial position, resulting in revenue and cost of goods sold, gross profit and operating expenses. How much revenue you project is important from a long-term viability perspective, but in some cases, such as internet sales, sometimes growth and customer numbers are just as important.

Consider your assets and liabilities: Assets are things you own that have value, while liabilities are amounts you owe others. When making your estimates, you need to make sure you include buildings, equipment, vehicles, and the like that you need to support your business plan.

Arrive at your break even analysis: The main area of ​​interest in projections is when you are ready to make a profit in your business based on a combination of fixed costs, variable costs per unit of sales, and revenue per unit of sales. This is the final stage in your business where expenses equal actual sales.

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