Make Realistic Financial Predictions for Your Business Plan
Part of the Creating a Business Plan For Dummies Cheat Sheet
Trying to predict business sales, expenses and cash flow is tricky. How can you be sure what sales will be? Will you have enough money to live on while your business grows? How much risk is involved?
Give the financial projections of your business plan a quick health check by asking a few straightforward questions:
Can you survive? For new businesses, calculate how much you currently need to live on (to cover personal expenses). If your new business is going to require your full-time attention, have you budgeted to pay yourself at least this amount each week?
Will you have enough capital? If you need to borrow funds and you’re not a homeowner, can you be sure a bank will be prepared to give you a loan?
Do your figures stack up? Do some research to find some financial benchmarks for businesses similar to the one you’re starting. Compare key percentages between these benchmark financials and your own.
Are your sales forecasts realistic? If you have a service business, break the sales forecast for each month into the number of hours you (or your employees) would need to work. Compare this figure against your wages bill, or against the time you plan to spend working in the business.
If you have a retail, wholesale or manufacturing business, break the sales forecast for each month into the number of units sold. Compare this rate of sales to current figures (if you have them). Again, ask yourself, is this realistic?
Is your business model robust enough? Look at your Profit & Loss Projection and decrease sales by just 10 per cent, and increase expenses by just 10 per cent. In this scenario, would your business still generate enough profit to survive?
Is forecasted growth too pie in the sky? If your sales forecast for this year shows growth when compared to last year, do you have strategies in place to justify this growth (such as extra employees, price rises or additional marketing)?