How to Plan Ahead for Your Small Business
As the owner or manager of a small business, of course you’re very busy, but it pays to step back and plan for your financial future. Take the time to forecast, plan, and budget. Have your Controller (chief accountant) prepare the following pro forma (according to plan) financial statements:
Budgeted P&L statement for the coming year. Even if this budgeted P&L is abbreviated and condensed, it plays an invaluable role. Provide your Controller your best estimates and forecasts for sales prices, costs, and sales volume during the coming year. From this information your accountant can prepare a P&L that serves as your performance benchmark as you go through the year. Don’t be afraid to change the budgeted P&L in midstream. Sometimes totally unpredictable events make your original P&L budget out of date.
Budgeted Balance Sheet at end of coming year. You don’t necessarily need a detailed listing of every asset and liability one year off. But you definitely should look ahead to your general, overall financial condition one year later. It’s better to spot problems earlier than later. Looking down the road at where your financial condition is heading can help you avoid major problems.
Budgeted Statement of Cash Flows. Preparing this budgeted financial statement is an excellent way to keep close tabs on your cash flow from profit (operating activities) and how you plan to use this cash flow. If you are planning major capital expenditures (new investments to replace, modernize, and expand your long-term operating asserts) a budgeted statement of cash flows is essential for making strategic decisions regarding how you will secure the cash for these expenditures.