Financial Forecasting

As StartUp Coach, I will often get asked how to prepare the financials as part of the Business Plan. Where do the numbers come from? How do I determine my sales when I don’t have a crystal ball?

Our StartUp Business Series continues below with a look at Financial Forecasting for both the StartUp and for existing businesses trying to forecast for the future.

StartUp Financial Projections

“Pro Forma” is a Latin word meaning “for the sake of form” and is basically a method for calculating financial results using projections or presumptions. Your StartUp financials in fact are simply “a guess”, but an educated one!

Just like predicting the weather - you need to collect as much data as possible about the state of the industry and your market, look at your operational processes and then determine how all of it might fit together.

There are 3 important pro forma statements that you need for your business plan: an income statement, a balance sheet and a cash flow statement. Even if you dislike numbers, I would highly recommend that you get familiar with the workings of each of these statements as they will be critical for you well beyond the StartUp phase.

But let’s get back to the guesstimation piece for your StartUp. Estimating expenses just requires a little digging on your part. You’ll need both your start up expenses (such as business licenses, website development and even fixtures and furniture), but also your ongoing operational expenses like rent, utilities, marketing and inventory.

Estimating sales for a StartUp is a little more complicated but absolutely doable. Remember, it’s an educated guess but one that you need to be able to justify. First, start by writing out the assumptions you have about your business. For example, is one of your assumptions that you will sell 7 out of 10 customers that find your website?

I also find that sales forecasting is a little easier by making 3 guesstimates, not just one. How is doing 3 statements easier than just doing 1, you might be asking?

Having 3 projections really forces you to confront those assumptions you might be making about your StartUp. Start with a best case scenario (one where you meet all your wildest sales dreams), add a worst case scenario (one where you’ve launched your business but finding it tough to make ends meet) and then finally add a realistic scenario. By doing all three, you will start to uncover your business biases and will help to challenge your perspectives about your business.

Need some more help? Contact me and I’ll be happy to work with you on your financial forecasts!

StartUp Coach

Existing Business Financial Projections

Financial forecasting for your existing business is important too! The best part is that you already have a sales and expense history that will help.

Just remember to make sure that you are not basing your financial assumptions on old beliefs. Creating a pro forma for an existing business provides you with an opportunity to check new trends happening that might affect your sales, check in with the economy, check in with your customers and make sure that they are still wanting what you’re selling.

Having a financial plan should look at the next 6 months to the next year. By doing this, you can anticipate times when you might need to scale back your expenses, perhaps it will show you when you need more capital in the business or it might even highlight when you might need to start hiring more staff.

This plan also allows you to keep track of actual events and compare them to your projections and make adjustments as the year passes. This is invaluable to help you keep your business out of financial trouble in the changing economic environment.

Want to learn more? Watch for our upcoming financial projection workshop in April that will be brought to you by Community Futures and StartUp Revelstoke.

In the meantime, join us Tuesday March 9th at 5pm for our Monthly MeetUp. This month we will be taking a look at financial forecasting and assumptions. And maybe, we can help you figure out how to do this without the use of a crystal ball!

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