Financial forecasts can help your business achieve its goals by making future predictions for where your business is heading financially. They can also help you get funding for your business.
It’s not easy to predict the financial future of your business, especially if you don’t have a trading history. However, making financial forecasts is essential for your business to keep track of where it’s going. And it’s also necessary for getting investors and lenders to contribute capital to your business.
Financial forecasts include:
- Start-up costs
- Sales
- Expenses
- Costs of goods sold (COGS)
Start-up Costs
Before you start your business you’ll need to understand exactly what costs are involved in getting it off the ground. These include things like:
- Insurance
- Permits
- Licences
- Stock
- Leases
- Advertising
- Equipment and supplies
- Legal and accounting fees
- Wages
- Cash flow until you’ve established a customer base
When starting your business, things are often more expensive than you’re expecting. It’s good practice to add an additional 20% on top of your expenses to account for this.
For help calculating your businesses, start-up costs download the Free Business Toolkit. In it you’ll find a handy worksheet to estimate your business start-up costs.
Sales
Estimating the number of sales your business will make is especially important when you’re first getting started. But it’s also important for established businesses.
When you’re getting started, estimating sales can help you determine potential staff, stock, and equipment that your business can afford. It will also help you determine how much capital you’ll need to get from banks and investors in order to get started. A sales forecast is often required to apply for funding.
For established businesses, estimating sales is important as it will help you evaluate your business goals and progress. You’ll also be able to compare your actual sales against your financial sales forecast so that you can see why things may be different from expected. This will help you discover any issues or financial leaks in your business before it becomes a major issue.
For help in developing your sales forecast download our Free Business Toolkit.
Expenses
Expense forecasts help you understand your operational costs over time. Business expenses include things like insurance, wages, accounting, legal fees, advertising, and rent.
When you’re first starting your business, base your financial forecast on industry standards. When you have an established business make sure to review your expenses each year and evaluate any changes which may have taken place between your records and your forecasts.
For help in creating your expense forecast download our Free Business Toolkit.
Cost of Goods Sold (COGS)
If your business sells physical products you’ll need to forecast how much each of these products costs to produce and stock. This report relates closely with your sales forecast as you can only sell as much stock as you have on hand.
To create a COGS forecast you’ll need to understand the costs associated with your product including:
- Wholesale cost
- Packaging costs
- Freight costs
- Commission costs
- Manufacturing or labelling costs
For help in creating your COGS forecast download our Free Business Toolkit.