Building your project has allowed you to determine what you can sell, and all of the means you need to build your business.You now have a clear idea of your business model, i.e., how your business will earn money.
You must now translate all these elements into figures and verify a certain number of points which will confirm the viability and profitability of your project. This step will thus give you (or not) the “go”!
Why Make Financial Forecasts?
To check the feasibility and viability of your business creation project.
Establishing these forecasts is an iterative process that gradually reveals all the financial needs of your future business and the resource possibilities that correspond to them. This step will thus allow you to go back and forth between the options taken on your project, their translation into financial terms, and their consequences on fiscal balances.
Thus, you will check the financial consistency of your project as you go. You can have to make hard decisions, such as reducing your ambitions on a particular option or, on the contrary, strengthening your equity.
To convince your financial partners and bankers
Such forecasts will be essential to you if you have recourse to external financing. You will have to convince and reassure your partners by providing them with figures.
Your financial outlook is an integral part of your business strategy
What Does This Study Consist Of?
The choices made in the construction of your creation project (nature of products/services, marketing, etc.) are reflected in human and material needs that must now be assessed in a precise manner. For each business function (buying, storing, manufacturing, prospecting, selling, etc.), it is necessary to match a cost.
Does that sound confuse to you? Do you not know where to start? Follow some straightforward tips and then apply the next method.
The method that we propose to you breaks down into 5 main steps allowing you to answer the following questions:
Question 1 – What capital is needed to start the project? Can you bring them together?
The answer lies in the initial financing plan, which parallels the needs investment ( need working capital included) and resource financing.
Question 2 – Will the company’s forecasting activity generate an amount of revenue sufficient to cover the costs incurred by the human, material, and financial resources implemented?
The answer is in the forecast income statement.
Question 3 – What is the minimum amount of sales / services to be reached in the first year to meet the costs and, therefore, for your project to begin to be profitable?
The answer is obtained by calculating the breakeven point. Note: the moment when you reach the breakeven point is called “the breakeven point.”
Question 4 – Will the revenues collected by the company throughout the first year allow it to cover the expenses for the same period permanently?
The answer is found in the cash flow plan, which highlights, month by month, the balance or imbalance between receipts and disbursements.
Question 5 – Will the company thus created to be sustainable? Will, the financial strength of the business built through the initial financing plan, continues as the industry develops?
The answer is given by the 3-year financing plan, which makes it possible to anticipate possible financing needs according to realistic growth assumptions. On internet you can find many well wriiten articles on financing plan, from there you can take help.
Tips For Successful Financial Forecasting
- By taking care of your market research, the valuable information gathered will be useful to you in building your financial forecasts.
- Don’t be overly optimistic in evaluating revenue or costs: it’s even prudent to minimize income and maximize costs to avoid unpleasant surprises.
If you notice too significant an imbalance, do not hesitate to reorganize your project, by changing the option, by reducing your ambitions if necessary or by looking for other sources of funding.
- Use the tool that AFE offers you free of charge: My business plan . will allow you to progress step by step in the construction of your project and thus to build a business plan that you can present to your contacts.
- And of course, contact a support network for business creators or an accountant for the construction of your forecasts or to have them validated. The outside perspective of a specialist is invaluable, and it will be useful for you to understand the mechanisms of business management fully.
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