News & Blog

July 14, 2018

Three Must Knows for Business Forecasting

Forecasting your Business using Pro Forma Statements

by Wilke & Associates, CPAs

1. Your Business Cannot Live Without Pro Forma Statements.

A Pro Forma Statement is a projected financial statement that is used to give an accurate idea of what a firm’s financial situation would be based on current trends and assumptions.

You will need to establish the frequency of how often you would like to review your Pro Forma Statement. As a startup entrepreneur, you may use the projected financial statements from your business plan to establish your pro forma statement. From that initial statement, you may want to review and adjust, on a weekly, basis the first year. Thereafter, you may choose to continue on a monthly basis or move to a quarterly schedule if that works better for your business. You will come to discover that forecasting will show a return on investment (ROI) on your time.

Pro Forma statements are used routinely in preparing ‘what if’ scenarios, formulating business plans, estimating cash requirements, or preparing financing proposals. You can use these statements to project sales, production, expenses, and profit. These statements will be crucial in management and operating decisions to move your company forward.

2. Accurate Cash Flow Forecasting

Having a positive cash flow is vital for a company to function and operate. Sufficient cash flow is necessary to meet short-term obligations and daily operations. Writing down crucial information such as your breakeven point and revenue goals will help you manage ebbs and flows in your business

Without accurate cash flow forecasting and a lack of cash flow will lead to a crisis situation or business closure. Using your gut or estimating in your mind where your company is headed financially is not the best philosophy. Being able to review your company’s history will help guide your future plans.

Many business owners believe cash flow and profits are interchangeable terms. Profit is net income-“The Bottom Line” for a period of time. Cash flow is net cash provided or used for a period of time.

3. Prepare an Accurate Cash Flow Projection. Below you will find an outline to build your own projection.

  1. Start with you beginning cash position
  2. Add cash received from customers
  3. Add borrowing and capital contributions
  4. Subtract all expenses paid
  5. Subtract all loan or other debt principle payments
  6. Subtract owner profit distributions
  7. Don’t forget about paying taxes

Cash Received – Expenditures = Net Cash Flow

We recommend these online tools for business forecasting tools
1. QuickBooks
2. Sage
3. FreshBooks

Now that you have your own cash flow projection drafted, it will be important to review with a CPA or business advisor like Wilke & Associates, CPAs & Business Advisors. Contact us today to continue the conversation.

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