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Good Day, in today’s post we have our first ever guest blogger Chelsea Lamb and this is what she has to say about how to forsee the financial future of your business. Let’s Go!
Whilst not the most attractive item on an entrepreneur’s to-do list, financial projections are essential for developing long-term strategies, attracting investors and allocating budget responsibly. You’ll want to make sure yours are as realistic as possible – here’s how.
It makes sense to begin your projection by outlining expenses. These can then be used to inform the rest of your calculations. Expenses can include anything from utilities to outsourcing – start by logging any receipts or existing contracts digitally on spreadsheets or accountancy software. This will also help you to determine how much taxes your business will have to pay at the end of the year. Many states require their businesses to file annual reports and/or pay taxes – failure to file an annual report could result in fees, penalties or even a revocation of your company’s right to conduct business within the state.
Once you’ve registered your current expenses, you can begin to project new costs going forward. It’s worth dividing up all of your expenditures into categories so you know which will change and which will not – fixed expenses, for example, are not going to deviate from month to month. Alternatively, variable expenses (although mandatory) may rise or fall depending on the circumstances of the business. It’s also important, at this point, to review any existing loans and include interest rates in your predictions.
However you look at it, trying to predict revenue is tricky. Any number of variables can affect the trajectory of your company’s sales, whether positively or negatively. For this reason, your first step should be to identify any near-certainties – how much is the company net earning across a year? With more funding, can you be sure to generate an increase in sales? If so, what is a fair estimate?
You can then build upon these figures conservatively – creating an accurate projection from existing data. This may be easier than you first thought, you’ll need to consider the who (current clients, future leads), what (your products and existing demand), why (is there a compelling and pressing reason to spend money on your services/product) and how (your sales pipeline, customer journey and point of purchase). The less you rely on conjecture, the more reliable your predictions may be.
Know The Market
You can’t account for hurricanes or pandemics, but you can try to predict market growth. By framing your financial projections within the context of the wider market, it’s often possible to create more accurate projections. This might include secondary research, which involves the use of public sources (i.e. government statistics) or reports generated by the private sector (i.e. Pew, Gartner). Alternatively, you could draw first-hand information from existing clients, leads, or target demographics to better ascertain the level of demand for services like your own.
If you can’t decipher the market as a whole, it often makes sense to carry out a competitor analysis instead. You’ll need to know competitor pricing structures, service offerings, marketing strategies and, ideally, have an idea of their profit margins. Not only this, but you’ll want to know how crowded the market is by similar services/products as your own. This will undoubtedly affect your ability to sell.
An accurate financial projection is difficult to attain, but, if you have data you can rely upon, it can streamline your business and set you on a clear path to success. Just make sure to put in the hours for research now, to avoid any catastrophes in the months to come.
Jalen Hamilton is a motivational coach, author and speaker. His mission is to empower others via his premium self-improvement brand. To learn more, visit: www.jalenhamilton.com