Financial Forecasting – A Key to Business Growth Planning

The first step to growing a new business profitably is to write a business plan. The purpose is to quantify what revenue it needs, in what timeframe, to break even and start increasing its profit margin. The business plan should consist of simulated financial reporting for the next 12 months: projected income and expenses; assets, liabilities, and equity; cash flow; most importantly, a break-even calculation. This points directly to what revenue you should expect to stay on course, and what short and long-term goals to set in your business growth planning. This is also known as “pro forma” analysis; a brief article at explains several other reasons why this is so important. Most importantly, however, pro forma analysis does not become any less important after the startup phase.

When seeking additional creditors, it is far easier to have forecasting written out than to assemble it at the last minute. This indicates that you have thoroughly considered reasonable growth goals and that your business has set an action-based plan to produce a strong return on investment. This can easily benefit interest rates on loans and lines of credit with creditors and suppliers alike. Additional capital at a business’s disposal means more tools to meet demand and produce income!

Uncontrollable factors influence businesses on a daily basis: competitors, economic fluctuations, a changing market, or a large account’s decision to take their business elsewhere. A business that has remained on top of its forecasting can examine the figures, identify areas of opportunity to either grow income or cut costs, and make adjustments accordingly. While the cash account may appear healthy one day, the case may change three months down the road or less. The business that can anticipate change and reevaluate its growth plan accordingly, will more easily maintain growth and profitability under adversity.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website

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