Cost Of Goods Sold Formula With Sales And Gross Profit Reinforce Your Business Plan With Sound Financial Projections

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Reinforce Your Business Plan With Sound Financial Projections

As strange as it sounds, financial forecasting is much more important and complex than actual results. More than just numbers, planning is important. Or rephrased, here the means to an end are more important than the end.

Without financial projections, business is like fumbling in the dark without a lamp and a map, and you won’t gain the trust of investors or get funding. Even if you’re self-funded or have a family business, you need financial forecasts as a guide and barometer to measure your business’s performance.

You need to consider these steps to get yours financial forecasts:

Develop your 3-5 year sales forecast: You can make your forecast based on past sales data, competitive comparisons, and current economic trends. It’s usually a mix and you should realize that your lenders of choice won’t believe you anyway! We all want to believe that our sales will skyrocket, but remember that your investors will hold you accountable in the future. Remember, if you need more capital three years from now, the same investors are a great source of money, but they will measure your current success against your initial projections.

Create an expense budget: These include the cost of your merchandise as well as your operating expenses such as equipment, payroll, rent, marketing, insurance, depreciation, etc. Typically, after estimating the cost of goods, we break down operating costs into broad categories such as: sales and marketing, administration, and then either research and development or other. Production costs.

Prepare a statement of cash flows: It refers to the flow of cash in and out of your business and shows your liquidity or ability to use cash when needed. (and being able to pay them back is important for lenders!) The cash flow statement is of great interest to investors and lenders, who want to make sure your business plan includes enough cash to keep you going.

Create your income projections: It refers to your financial position as a result of revenue, cost of goods sold, gross profit and operating expenses. Projected revenue is important for long-term viability, but in some cases, such as online sales, sometimes growth and number of customers become equally important.

Consider your assets and liabilities: Assets are things you own that have value, while liabilities are amounts you owe others. When creating your projections, you need to make sure you include the buildings, equipment, vehicles, and anything else you need to support your business plan.

Access your profitability analysis: The main area of ​​interest for forecasts is where you are ready to make a profit in your business on fixed costs, variable costs per unit of sales, and revenue per unit of sales. This is the last stage of your business where expenses equal actual sales.

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