Financial forecasts for your business

Your financial forecasts interpret what you mentioned about your business into figures.

Set out past financial information for the last three to five years, if available.

  • Break total sales figures down into parts—for example, sales of different types of products or to other groups of customers.
  • . Show the gross margin for each sales element. List what costs include as direct costs of each component.
  • Show the movement in the essential working capital items of stock, trade debtors, and creditors.
  • Use ratios such as stock turnover (in months),
  • debtors’ time (in days),
  • and creditors’ period (in days).
  • Emphasize any significant capital expenditure made.
  • Make an up-to-date balance sheet and a profit and loss account.
  • Explain the reasons for profitability, working capital, and cash flow movements. Match them with business actuals.

Prepare financial forecasts for the following three (or even five) years.

  • The cleverness of your forecasts should reflect the sophistication of your business. Small businesses may only need sales, profit, and cash flow budgets.
  • A more complicated, asset-based business with complex working capital requirements also needs balance sheet forecasts.
  • Use the same format for the past data to make checking possible.
  • Clearly state the assumptions behind the predictions. These should tie in with what you say in the rest of the plan. For example, profit margins should probably fall if the program displays the market is becoming more competitive.
  • Be realistic about forecasts in new markets. For example, how many resources can you assign to selling, what sensation rate can you assume, and what time will it take to convince new customers?
  • Look at the overall trends of past and forecast numbers. Are they believable? Do the forecasts allow for problems and payment delays affecting cash flow?
  • Judge ‘what-if’ circumstances. For instance, imagine the consequence of your cash flow situation if the sales are 20% lower than the prediction or 15% higher.

Add detailed financial forecasts in an appendix at the end.

Include a detailed list of assumptions, especially if you are a startup. For instance:

  • The profit margin on each creation.
  • The time it takes to collect payment from debtors.
  • What credit suppliers will offer you?
  • What financing do you expect, and what interest rate will you pay?

Use the cash flow predictions for any financing needs.

  • Add an extra emergency amount onto the funding needs given in the forecast (maybe 10-20%). Consider what mid-month heights could be.
  • Find what type of funding you will require. For instance, long-term loans or an increased overdraft amount.
  • Add the likely interest or dividend costs of any new finance.
  • Conduct sensitivity tests on the cash required by changing key factors, such as sales or margin. Note the results.
  • Explain why the financing is necessary and what you can use it for.

If necessary, get help.

Small business advisers at banks and business support organizations may help you prepare financial forecasts free of charge.

  1. 9. SWOT analysis

A SWOT analysis helps show you understand your business and the critical external factors you must deal with.

Make a one-page analysis of strengths, weaknesses, opportunities, and threats.

  • Strengths might show brand name, quality of your creations, or management experience.
  • Weaknesses might be less capital and dependence on few customers.
  • Opportunities might be increasing pressure or an opponent going broke.
  • Threats might be a downturn in the economy or a new opportunity.
  • Be straightforward about your limitations and the threats you face.
  • Spell out modifying situations and the defensive actions you are taking.

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