Financial forecasting reminds me of the weather - you make your forecast at a moment in time based upon the information currently available. You draw a conclusion and state your financial forecast. But then, the information changes, now it's raining, and you're caught without your umbrella!
Financial forecasting, unlike the weather, isn't a science but it's not pure guess work either. It is a combination of:
- knowing your business;
- understanding your marketplace;
- setting goals; and
- using common sense.
As a business coach, I know that every small business needs to make reliable financial projections at one time or another. Forecasting is critical during the following stages of a company's life span:
- when seeking financing
- gauging the profitability of a new product or service
- determining the impact of staff expansion or cutback
- assessing other business decisions
The many components of forecasting boil down to the following five bookkeeping business tips that for years I've shared with business coaching clients:
Bookkeeping Business Tip #1: Review Actual Year-To-Date Results
Start by looking at where you've been. If you use an accounting program like QuickBooks you can print out a Profit & Loss statement showing year-to-date results. Check the statement for all financial transactions that occurred up to the date of the report. Reconcile the report to your bank statements. (If you don't use an accounting program or bookkeeping service, then take the difference of the total year-to-date cash receipts and total expenditures. This should equal your profit or loss.) Examine each line item to make sure that it makes sense - is your year-to-date revenue figure where you anticipated, or has it fallen short? Are expenses higher than expected?
Bookkeeping Business Tip #2: Establish Goals and Incorporate into Your Forecast
What do you wish to accomplish by year's end? Do you want to introduce a new product or service, increase revenue on existing products or services, decrease spending, hire a new employee, outsource a bookkeeping service, or launch a marketing campaign that will position the company for the beginning of next year?
Write out your objectives and then choose three to five which are the most important to accomplish by the end of the year. Determine the needed steps to achieve the objectives. Which Profit & Loss line items will be impacted? Adjust your forecast accordingly. For example, your goal may be to increase revenue 10% by year's end or to launch a marketing campaign now so its benefits will be felt in the first quarter of 2009.
Read more...
Financial forecasting, unlike the weather, isn't a science but it's not pure guess work either. It is a combination of:
- knowing your business;
- understanding your marketplace;
- setting goals; and
- using common sense.
As a business coach, I know that every small business needs to make reliable financial projections at one time or another. Forecasting is critical during the following stages of a company's life span:
- when seeking financing
- gauging the profitability of a new product or service
- determining the impact of staff expansion or cutback
- assessing other business decisions
The many components of forecasting boil down to the following five bookkeeping business tips that for years I've shared with business coaching clients:
Bookkeeping Business Tip #1: Review Actual Year-To-Date Results
Start by looking at where you've been. If you use an accounting program like QuickBooks you can print out a Profit & Loss statement showing year-to-date results. Check the statement for all financial transactions that occurred up to the date of the report. Reconcile the report to your bank statements. (If you don't use an accounting program or bookkeeping service, then take the difference of the total year-to-date cash receipts and total expenditures. This should equal your profit or loss.) Examine each line item to make sure that it makes sense - is your year-to-date revenue figure where you anticipated, or has it fallen short? Are expenses higher than expected?
Bookkeeping Business Tip #2: Establish Goals and Incorporate into Your Forecast
What do you wish to accomplish by year's end? Do you want to introduce a new product or service, increase revenue on existing products or services, decrease spending, hire a new employee, outsource a bookkeeping service, or launch a marketing campaign that will position the company for the beginning of next year?
Write out your objectives and then choose three to five which are the most important to accomplish by the end of the year. Determine the needed steps to achieve the objectives. Which Profit & Loss line items will be impacted? Adjust your forecast accordingly. For example, your goal may be to increase revenue 10% by year's end or to launch a marketing campaign now so its benefits will be felt in the first quarter of 2009.
Read more...
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