One of the tasks involved in financial planning is creating a financial checklist, which is a list of tasks that a company must finish within a specific time frame. With 2023 drawing to a close, it may be said to have been unpredictable, but with optimism for a brighter future. The continued existence of most businesses was and still is greatly impacted by funds or the lack of them. Today, we will look at how to prepare your 2024 financial forecast/budget.
An overview
It is important to understand that creating a business plan is just one step in the process of being successful. Many entrepreneurs become stuck on the process of creating a clear-cut financial forecast or budget because they are more thrilled about the idea of starting their business than they are about creating a realistic forecast or budget.
A business's financial growth expectations are mapped out in financial planning. It includes plans for reaching the growth predictions as well as short- and long-term company projections and strategies.
A financial forecast is merely an estimate of your company's future earnings and spending. It may be long-term or short-term and is a crucial document that is included in the business plan and is required in order to secure external financing.
Building your financial forecast/budget
For a new business, it involves:
Market research – One of the ongoing processes in your company journey is market research. If you are a start-up with no past revenue or expenditure data, it is essential to get information from the industry about what kinds of things make up revenue and expenses.
Creating a financial projection – Create a spreadsheet that displays your monthly inflow and outflow by entering your projected costs and revenues based on the data from your market research.
Prepare a projected profit and loss statement and balance sheet.
Using your forecasts to make realistic plans requires you to prepare for a variety of possibilities, including the worst-case, most likely, and best-case scenarios.
Updating your financial forecast – After your company opens for business, you will need to assess if you are on track by comparing your actual business performance to your projected performance. The financial forecast may typically need to be modified.
For an existing small business, it involves:
Reviewing total spending during the past or present financial year – this is an excellent place to start since it makes it possible to see the financial state of the company clearly before creating a plan for the budget. The balance sheets, profit and loss statement, and cash flow statement will offer the details needed for an appropriate evaluation.
Setting goals for the next financial year – Setting company goals is the next step, which is determined by the data gathered from the examination of the earlier statements. To do this, the business has to:
a) Estimating the revenue for the upcoming fiscal period.
b) Making a list of all of the fixed expenditures for the period of time, including charges that are specific to the company such as rent, insurance, salaries, and other constant expenses.
c) Calculating variable costs – These are expenses that vary according to the volume of production or sales.
d) Allowing for incidental costs – this is the cash saved for unforeseen circumstances or emergencies. This is especially important to avoid unforeseen incidents causing business operations to be disrupted.
Preparing the budget – Once the above steps have been implemented, you are now ready to create your budget.
Benefits of a financial forecast/budget
One of the major benefits of a financial forecast/budget is that it allows the company to understand the larger picture of its performance and financial health. Additionally, a financial forecast/budget
serves as a yardstick to measure your progress concerning your plans.
is essential for obtaining business loans and to attract investors.
helps to understand the financial position of your business.
prepares you for unforeseen events that might affect your business.
helps to make important decisions.
Although creating a financial forecast/budget helps to keep the company in check, it is vital to recognise that there are situations in which the real financial balance or record may deviate somewhat from the financial forecast/budget.
Budgeting and forecasting are made easier with a basic understanding of accounting. However, you might require a professional to help you through the procedure in order to save time and improve your chances of receiving funding from outside sources.
We, at the OVAC Group, can help you prepare your business 2024 forecast/budget. Email us at enquiries@ovacgroup.com for a free consultation.
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