It’s difficult to evaluate a company without taking its financial aspect into consideration. It operates in a financial environment that requires it to take into account certain capital investment needs and constraints. Let us guide you through this key stage of business creation!
The financial forecast is the quantified part of your business plan. It should enable you to verify the viability of your project and prove to bankers and/or investors that you are generating sales. Generally speaking, forecasts are based on the first three years.
Forecasting is an essential step in drawing up your business plan. To make it even more effective, you may find it useful to use management software. This type of tool enables you to compare each actual figure with those estimated and to monitor and analyze the evolution of your business.
This part enables you to put a figure on your project and determine the viability and potential of your idea. It also enables you to set sales targets and make the development of your business concrete. Bankers and future investors will be looking closely at this part, as it is crucial to gaining their trust and proving your seriousness.
What does the financial plan contain?
The financial plan must contain at least the following projected financial statements for the next 3 years:
- the projected income statement, showing the profit or loss achieved,
- the projected balance sheet, showing the company’s assets and liabilities (debt, equity and assets),
- and the cash flow forecast, which shows the company’s capacity to generate cash.
These projected financial statements should be accompanied by analyses and comments detailing the main assumptions used to draw them up.
If you are drawing up your financial forecast as part of a business start-up, a monthly version of these startup funding statements will generally be required for the 1st year.
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Can I, do I want to?
You should know that you cannot avoid the risks of being an owner. You will have to be responsible for everything: for the purchase and delivery of goods, for rent and advertising, for labor protection and salaries to employees, for finding customers, and much, much more.
If you used to calmly leave work and forget about work problems, now you will have to work for 12-18 hours, and you will forget about urgent issues only during hours of sound sleep. And this state will last for at least a few months until you can “launch” your business.
You will learn to be a universal specialist: to do everything and think about everything. If you are still reading this article and you still have the determination to start your own business – DO IT! The biggest obstacle to starting a business is laziness and long deliberations.
The main enemy of your own business is long deliberations and the inability to separate the main from the secondary.
How do you make a financial forecast?
There are 4 main stages in producing a financial forecast, as detailed below:
Step 1: Sales forecast
Start by estimating your company’s projected sales.
Step 2: Sales margin
Once you have an idea of sales, the next step is to calculate the sales margin.
Step 3: Overheads
Next, draw up your projected overheads budget, covering external expenses, taxes, and personnel costs.
Step 4: Projected financing plan
Once you’ve finalized your budget, it’s time to look at the projected financing plan.
What questions should your financial plan answer?
Your financial partners have very specific expectations of the financial aspects of your business plan.
Establish a multi-year vision for your financing plan. For example, don’t forget to include variations in working capital requirements and dividends over several accounting years. The initial financing plan should evolve into a projected financing plan.
Balance sheet forecasts, income statement forecasts, financial ratios (repayment capacity, break-even point, etc.), and a market study all take their place alongside the financing plan in the business plan. These financial forecasts are essential to the success of your project, and must not be neglected.
Choosing the right status and setting up the company
Setting up the company to run your project is the final step before actually launching it. Particular attention must be paid to the choice of company status, according to various criteria such as the degree of independence desired, the taxation system… The formalities are relatively simple for the creation itself.
What Does Good Financial Management Boil Down To?
A company’s financial objectives cannot be summed up in sales alone, and it would be a big mistake to confuse sales with real profits. Financial management must be guided by three criteria that are essential to the smooth running of the business:
Profitability: it’s clear that to grow, a company must be profitable. But what we often forget is that to grow, you need investors who are only interested in profitability.
Solvency: two very important points for business development. Once the company has raised capital (and proved its profitability), it needs loans. It will be virtually impossible to obtain a loan if the company is not solvent. No bank will commit as a partner if it knows, in advance, that it runs a high risk of never seeing its money again.
Liquidity: did you know that a considerable number of companies go into receivership as a result of cash flow problems? When disbursements exceed receipts, the whole company is destabilized. A word of advice: keep an eye on your cash flow or Working Capital Requirement.
Making mistakes and gaining empirical experience in practice is good, but having a theoretical basis is even better. Improve your skills through courses and training, and gradually understand all aspects of doing business: marketing, finance, management, sales, communications, recruiting, etc.