Here we are going to discuss how to make correct and accurate financial predictions for your business at the start-up stage?
Creating a correct and accurate financial forecast for your company is very important during the start-up phase.
Most business owners complain that building accurate financial forecasts/ financial projects takes time, and that time can be used to generate sales instead of planning. However, how some investors will invest in your company in the absence of clear projections is also a factor to consider. That’s why it is even more important that you do a financial structure or planning broadly.
Correct financial projections will help you with staffing and operational planning that will take your company to the next level.
How to make clear and accurate financial predictions for business? .. Here are the ways to help you make a financial forecast / financial projections for your business, which are as follows: –
First, let’s start with the expenses
Is your company in the start-up stage?
If so, it is easier to predict expenses rather than revenue. So, start with estimates of common expenses such as –
- Rent,
- Utility bill like electricity bill, water bill etc.
- Phone bill, internet bill,
- Legal fee,
- Advertisement
- Cost of Goods Sold (Cost of Goods Sold),
- Raw materials and
- Cost of customer services etc.
Double your expectations/estimates for marketing and advertising as they exceed expectations. Consider triple the legal and insurance fees as these are difficult to estimate.
Check the ratios of the main expenses to make sure that your estimates are accurate.
Don’t forget about expenses, especially after forecasting revenue or sales. Most of the entrepreneurs focus on reaching the revenue or sales goals/goals and they keep positive thinking and believe that if there is no revenue or say if the revenue is less then they can adjust the expenses.
So here’s the thing to understand that positive thinking can help you improve your sales, but it is not enough to pay the bills.
Using “key ratios”, you can match your revenue and expense forecasts. Here are some ratios that can guide you in making an accurate forecast:-
How to Make Business Decisions?
1. Total Profit (Total Profit) –
It is the ratio of total direct cost to total revenue for a given period. Focus on ideas that can increase your gross margin by 10 to 40%. For example, if your customer service and sales expenses are low now, they could be high in the future. That’s why pay special attention to this concept.
2. Operative Profit Margin (Operating Profit Margin)-
Operating profit margin measures the profit earned on one rupee of sales after accounting for variable costs of production – such as wages and raw materials, and before paying interest or taxes. This ratio is expected to see positive movement.
As your revenue increases, overhead costs should be a smaller proportion of total costs, so your operating profit margin should increase.
Please note –> Most of the entrepreneurs make the mistake of predicting the break-even point very quickly and they assume that they will not need financing to reach this point. But it can be wrong, so be careful and alert.
3. Customers per total headcount (total headcount per customer) –
Are you a One Person Entrepreneur (OPE) planning to grow your business on your own?
If the answer is YES then,
Pay close attention to this ratio.
Divide the number of employees in your firm by the total number of your clients (if only you do everything on your own). Then, ask yourself whether you would want to be managing all those accounts in five years as the company has grown. If not, you need to reevaluate your assumptions about payroll or revenue or both.
Every successful entrepreneur has made mistakes in their business at one point or another. We should consider it as part of the learning process.
Although mistakes happen, there are many common marketing mistakes you can avoid.
So, here we discussed how to make clear and accurate financial predictions for your business? Click here if you need more information.
I would be very happy to guide and help you.
Your friend!