FINANCIAL STATEMENTS AND FORECASTING

Magnifying Glass!

Preparing financial statements on a regular basis is essential to the fiscal health of your company.

Once you know your current financial situation and have defined your vision by setting growth objectives and producing a business plan, you can start projecting your financial needs.

Usually prepared monthly, financial statements provide you with a picture of your company’s assets and liabilities, and clearly show your year-to-date revenues and expenses.

TWO TYPES OF PROJECTED FINANCIAL STATEMENTS ARE USUALLY PREPARED TO GIVE YOU A CLEAR UNDERSTANDING OF WHERE YOUR BUSINESS IS HEADING:

1. ANNUAL PROJECTIONS FOR A PERIOD RANGING FROM ONE TO FIVE YEARS

These detailed annual projections are predictions about your future cash flow and are based on your financial statements.

2. A DETAILED MONTHLY CASH BUDGET FOR THE FIRST YEAR

The monthly cash budget identifies your cash balances for each month during the operating year. This information will help you decide how much money to keep in the bank for month-to-month expenses and help in negotiating a line of credit.

HERE IS AN OVERVIEW OF THE PROCESS:

  • Review your past operating resultsAnalyze expected future market conditions for your products or services
  • Estimate your future sales volume, price and revenue for each product
  • Estimate future costs based on forecast sales volume and expected cost relationships
  • Deduct income taxes
  • Make accounting adjustments, such as depreciation and amortization
  • Deduct what you expect you will spend on fixed assets, working capital and financing
  • Include the proposed investments in the forecast

YOUR BUSINESS PERFORMANCE CAN ONLY BE IMPROVED BY USING CAREFULLY PREPARED FINANCIAL STATEMENTS.