When starting a new company, having a business plan in place and setting out your financial goals and projections will be important. Forecasting and projecting your sales and expenses is critical during the early stages of your business. It can take time to forecast accurately and it can be a challenge for new business owners. Banks certainly will not approve loans if accurate forecasts are not provided. They will need to know that your business is going to be profitable and the loan they approve is not a risk. For the formation of a company, having accurate forecasts will ensure that your business performs well financially allowing you to make staffing and purchasing decisions more effectively.
Project Your Business Costs First
When projecting you financial forecasts, it will be much easier to start with your business expenses first. Costs to your business which can be forecasted accurately include the following;
- Fixed costs and business overheads
- Rent for business premises
- Utility and energy bills
- Phone bills and line rental
- Postage and stationary
- Internet and technology cost
- Legal costs
- Advertising and marketing
- Employee salaries
- Variable Costs
- Cost of sales
- Cost of Goods Sold
- Materials and supplies
- Direct Labour Costs
Forecasting Revenues Sales
Projecting sales can be tricky at the beginning especially with no financial data available. Once you have been trading for 12 months, you will have the sales data to forecast more accurately. At the start of your business it may be wise to have 2 forecasts in place for sales. One forecast can be more conservative and the other thinking a little bigger. Aligning these forecasts with your marketing and sales can help you reach the projections. Both forecasts may have different price points.
With both revenue projections it is important to consider your expenses. For a more optimistic sales forecast, you may be implementing a bigger budget for sales and marketing. It is important to acutely align your expected costs to achieve such sales. Forecasting your Gross profit is essential as your expenses for achieving sales need to be calculated. Your operating profit will be you gross profit minus your overheads which includes staffing and operating costs. Remember when forecasting accurately, it is important to acknowledge that as sales grow so will cost. Margin control can be applied by looking at wastage, energy usage and better use of staffing. This is why forecasting is important in the early stages.
Forecasting as accurately as possible in the start up stages will be critical to success. Securing any form of loan will not be easy without realistic business and sales projections. Overheads and costs may higher in the beginning so take this into account when planning your forecast. Also it is important for business owners to look at seasonal fluctuations such as Christmas, school holidays, Easter and public holidays all of which can have a positive or negative effect on sales. Once your business has collected valuable sales data, it will be possible to forecast on previous sales data.
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