Finance and Business

Bookkeeping Business Tips for Developing Reliable Financial Projections

 

Financial forecasting reminds me of the weather – you make your forecast at a moment in time based upon the information currently available. You draw a conclusion and state your financial forecast.  But then, the information changes, now it’s raining, and you’re caught without your umbrella!

Financial forecasting, unlike the weather, isn’t a science but it’s not pure guess work either.  It is a combination of:

knowing your business;

understanding your marketplace;

setting goals; and

using common sense.

 

As a business coach, I know that every small business needs to make reliable financial projections at one time or another.  Forecasting is critical during the following stages of a company’s life span:

when seeking financing

gauging the profitability of a new product or service

determining the impact of staff expansion or cutback

assessing other business decisions

 

The many components of forecasting boil down to the following five bookkeeping business tips that for years I’ve shared with business coaching clients:

Bookkeeping Business Tip #1: Review Actual Year-To-Date Results

 

Start by looking at where you’ve been.  If you use an accounting program like QuickBooks you can print out a Profit & Loss statement showing year-to-date results.  Check the statement for all financial transactions that occurred up to the date of the report. Reconcile the report to your bank statements.  (If you don’t use an accounting program or bookkeeping service, then take the difference of the total year-to-date cash receipts and total expenditures.  This should equal your profit or loss.) Examine each line item to make sure that it makes sense – is your year-to-date revenue figure where you anticipated, or has it fallen short?  Are expenses higher than expected?

 

Bookkeeping Business Tip #2: Establish Goals and Incorporate into Your Forecast

 

What do you wish to accomplish by year’s end?  Do you want to introduce a new product or service, increase revenue on existing products or services, decrease spending, hire a new employee, outsource a bookkeeping service, or launch a marketing campaign that will position the company for the beginning of next year?

 

Write out your objectives and then choose three to five which are the most important to accomplish by the end of the year. Determine the needed steps to achieve the objectives. Which Profit & Loss line items will be impacted? Adjust your forecast accordingly.  For example, your goal may be to increase revenue 10% by year’s end or to launch a marketing campaign now so its benefits will be felt in the first quarter of 2009.

 

Bookkeeping Business Tip #3: Forecast Variable Costs

 

Variable costs are costs that change in step with revenue change.  For example, you are selling more widgets; therefore, your labor costs and materials costs will increase in relation to the revenue increase. 

 

Using the concept that Forecast = Projections + Predictions, combined with the knowledge that variable costs change in step with revenues, forecast each month’s variable costs.  Forecast each line item separately. Look for opportunities to reduce costs, and be aware of likely future influences on each cost.

 

Bookkeeping Business Tip #4: Forecast Fixed Expenses

 

Fixed costs are relatively stable costs that recur every month.  Examples of fixed costs are rent, telephone and bookkeeping service fees. Forecast the month’s fixed expenses by using the same concept used to forecast variable costs (Forecast = Projections + Predictions) and the knowledge that fixed expenses tend to be relatively stable and do not change in step with revenues.  Again, forecast each line item separately, looking for opportunities to reduce costs, while keeping in mind any likely future influences.

 

Bookkeeping Business Tip #5: Forecast Net Profit

 

The final step is to evaluate your forecast for net profit.  Is the profit forecast is reasonable and acceptable?  If not, re-evaluate each line item including revenues and make appropriate adjustments.  Also, anticipate non-operating income and expense items, and include them in your forecast.

 

Your financial projections may not be perfect at first, but we didn’t learn to walk without falling down.  As a business coach I’ve seen others get a few bumps along the way. But I guarantee that if you follow these bookkeeping business tips, set your financial projections on paper and revisit them frequently, you will achieve your goals faster.  

 

Tags: Bookkeeping, business, Developing, financial, Projections, Reliable, Tips

Finance

We all use finance when we require additional money to fund a project for example. The subject it is actually a part of is economics which is also used to manage assets both monetary and fixed. This subject is also referred to as a system of administering money used by the private and business sectors. A company that has funds to manage will, more than likely, employ the services of a finance manager who is likely an expert in the field of economics.

These managers arrange funds to be lent to individuals or business using their company’s assets where possible and if not sourcing the money elsewhere. The simple process of optimization is used to receive the most from these funds by reducing the cost of arranging the finance while at the same time ensuring returns are high. Poor finance management is caused when managers neglect the rules and a deterioration occurs affecting markets around the world. That is why, a fund managers job is stressful as they must be careful where they allocate their funds and the potential risk involved thereafter.

Finance managers can be very short sighted, only looking at the initial cost involved and not the future return capability of the project. Unlike the sales managers who would like to invest in the future by product development, finance managers are rather skeptical of financing a project whose benefits lie in the future; even though their management governs future outcomes too. Unfortunately when you are running a small business, the boundary lines between a personal loan and a business loan can be a little blurred and often the planned arrangement is not used as was not used for its original purpose. Most lenders will cancel the loan if they feel they have been deceived this way because they are unsure what the money is to be invested in.

Hopefully by educating the small (and large) business owners of their fiscal responsibilities they may build the basis of an improved company in the future. However, small businesses can finance their needs from other sources like friends or from banks and private lenders. Lenders prefer to use money from elsewhere because it lowers their risk but still allows for a healthy profit to be received by the finance company. Banks have always been known as institutions that prefer to lend money to those that least need it which is why if you are already wealthy and require a loan it is often arranged at a preferential rate of interest.

Tags: finance, financial, financial manager, small business

How Not To Fail in Business Financial

Your company in May were the first three years of crucial importance, but how about the years in a head? Is your company strong enough to go without the risk of failure?

If the new Internet business can be done by the first three years, chances are high enough for him to survive long term. The question is how to success in preventing the financial failure of these critical years, and beyond?

1. Know that there is the profits which is difference with cash flows. Just because you have the sale and possession of money does not automatically mean that receivable. Consider about price strategy to put cost in safe area.

2. If this is just the beginning, it is better to overestimate your start-up costs as undervalued. Analyze a detailed cost and operating expenses you have, and identify opportunities for financing ahead.

3. Regarding debt, don`t rely too much to loans and debt overload. The company has a healthy balance between equity and debt. Work within your budget until you return, which in May include other charges.

4. If you are not in debt, make sure you understand your financial expectations. Not in any agreement that you do not know, because it is in honor of destroying the reputation of your company in the financial community May be the kiss of death for the growing number of online businesses.

5. If your company has employees, including virtual, to ensure they are well managed so that everyone should have its own weight and exercise of their professions. On the payment of employees who regularly does all this mess or things may lead to collapse.

6. Not so much money on new products and ideas while reading the market to ensure that there is a demand. The worst thing you can do is blindly buy something and find thousands of dollars later, it is not for sale.

7. Use SWOT (strengths, weaknesses, opportunities, threats) to overcome the gaps and avoid these dangers, and other situation expected in the future.

Tags: business, financial