Why Business Owners Should Make Accurate Financial Projections.
Every small business owner wants to make a profit. You invest time and money into your business to earn revenue, but how much cost and income is realistic for a healthy business? Individual financial reports can shed some light, but combining them into a financial projection can put everything into perspective. Today, Cymru Marketing Journal offers some tips and resources to guide you through the process.
First, What Are Financial Projections?
Financial projections forecast your business’s expected expenses and revenue. One-year, or short-term, projections are usually forecast by month. Long-term financial projections usually cover a three-to-five-year timespan.
How Can You Create These Projections?
New small business owners don’t have previous data to use for projections, but researching industry and overall economic trends can provide workable numbers. Existing companies use data from the past three years. Several different financial reports go into your financial projections.
It’s important to use realistic numbers when creating your forecast. Otherwise, they’re meaningless. Also, you need to invest in accounting software that works for your business and will allow you to cultivate deeper insights without paying a fortune in registration fees.
Projected Expenses
Some monthly expenses are fixed, such as rent and other overhead costs. In some months, you may spend heavily on marketing and inventory purchases, while those costs may be minimal in other months.
Expected Revenue
Many businesses experience predictable busy seasons; lawn care companies are busiest during warm months, while some retail stores make many sales near holidays. Study previous sales numbers or market potential to estimate how many items you’re likely to sell and their attached price tags.
Cash Flow
Expenses sometimes come months before the resulting revenue. Retail stores must order seasonal inventory months before it’s sold. Also, some companies allow clients to purchase on credit with payments due when statements are distributed. Knowing when cash goes out and comes back into your bank account is crucial.
Balance Sheet
This report includes all business assets and liabilities. Inventory, equipment and accounts receivable are examples of assets, while accounts payable and other debts are liabilities. The balance sheet total shows the difference between the values of your assets and liabilities and can be a positive or negative number.
Profit and Loss Statement
This statement uses data from your projected expenses, expected revenue, and cash flow reports to estimate potential profits or losses.
Break-Even Point
Experts understand that it may take some time for new companies to break even. Knowing when your business should become profitable gives you a framework for assessing your business’s viability.
Are Your Accounting Skills Up to Par?
Not every entrepreneur knows about running a business and its finances. However, it’s not too late to learn. Online degree programs provide flexible ways to learn new skills while operating your company. An accounting degree helps develop financial skills, including making realistic predictions. MBA degrees teach more in-depth business acumen. Earning an online degree can help you make better business decisions for a healthier company.
Why Are Accurate Financial Projections Important?
For-profit businesses pay taxes. Most states require annual reports and tax payments; failing to do so may incur fees and penalties. Your business license can even be revoked. Accurate projections allow you to set aside monies to pay these taxes.
In addition, lenders need to see accurate, detailed financial projections as part of your business plan. Making and regularly updating your projections allows you to know and adjust your company’s financial expectations.
What Does Your Forecast Say?
Accurate financial projections provide many benefits to your business. Online degree programs and the right software can provide the know-how and how-to, and the time spent making these projections can make your business stronger. Whether you are starting up or an already established business looking for more exposure, Cymru Marketing Journal is here on hand to take care of all your marketing needs. We will write content and advertise your business to give you added help to generate more leads. We’d love to hear from you.
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