Setting Reliable Financial Projections

Big Yawn . . . am I right?  Forecasting can seem a daunting and labor intensive business activity, but one that must be done nevertheless.  Simply put, financial projections are just a way for businesses to budget and set goals for the year, similar to doing a personal budget.  It is a great way to get motivated and excited at where your business is going and growing.  It also acts as a measuring stick for staying on track to your goals, or make adjustments throughout the year as needed.  The secret is to break it down into these simple and manageable steps.

Review year-to-date results:  You need to look at your history to know what to expect in the coming months.  You can refer to your profit & loss statement showing year-to-date results.  Are the numbers what you were expecting?  If not, then you need to look closely at how to increase revenue and decrease expenses.

Establish Goals:  What do you want to accomplish by year-end?  Do you want to introduce a new product/service, decrease expenses, hire personnel, outsource your bookkeeping, or launch a marketing campaign?  List everything that comes to mind, but then choose just 3-5 which are the most important to accomplish by year-end.

Forecast:  How will your goals above affect your variable costs and expenses.  For example, if you are looking to increase production, then that will increase labor and material costs in relation to the revenue increase.  Also forecast your fixed expenses such as rent, telephone, and bookkeeping services.  Forecast each line item separately, always looking for ways to reduce expenses.

Net Profit:  The final step is to look at your net profit after all the changes you made.  Is this an acceptable profit?  If the net profit forecast is not reasonable, then re-evaluate each line item including revenues and make appropriate adjustments.

If you follow these forecasting tips, set your financial projections on paper and review them frequently, you are well on your way to achieving your goals faster.  And remember, Virtual Bookkeeping can also take you through this process as part of our bookkeeping services.  We are only a phone call away !