Are you overwhelmed by the need to maintain your company’s financial success?
Are you looking for ways to push growth in the right direction? Are you making a lot of money and don’t know what to do with it? One possible solution is to create a financial forecast.
A financial forecast is a possible by projecting and predicting not only the cost of products and services but also the profits and income generated by sales. There are elements that are required for the construction of the forecast to be realistic, and they focus mainly on detail and precision.
The financial forecast processes and estimates the future of a company based on its movements, both income and expenses. For example, making a prediction of the future of a company based on its sales figures, which will determine in which economic scenario the company finds itself. Therefore, the indicators are so important, that they help determine the next move to achieve the set financial goals.
To create an effective financial forecast, you can follow these steps:
Determine your company’s financial story:
Know the financial history of the company as a basis for analysis for the forecast, since regular patterns and behaviors can be determined.
Analyze the breakeven point:
This analysis tells you how much income you will need per week or per month to cover expenses, both fixed expenses and percentage of gross profit.
Profit and loss forecast:
This aims to obtain the estimates of sales and expenses that are used for the break-even analysis in order to obtain a formal projection.
Cash flow projection:
This analyzes the company’s operation, which is useful in order to predict if it will be possible to keep the company afloat in a period where debts must be paid, and income is not being generated.
Define financial ratios for profitability, debt, and liquidity:
The challenge with financial ratios is dependent on how to set standards. Especially for new business with no prior activity. Financial ratios are usually expressed in percentages (usually x divided by y), or simply “x: y”. At the end of each accounting period, you will need to review and calculate your specific ratios regarding how much money you are making, how much debt you are managing, and how much cash is flowing for your account.
Create an action plan:
Once you’ve set up all your data and understand it in a way that will describe your current company’s situation, it’s time to start working on it. Define specific actions per business area that will manage and mitigate potential risks and support growth in the short, mid and long-term period.
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