Sin number 3 - Not having financial forecasts
By Greg Carroll
This forms a critical part of your business. At a minimum you should prepare a one year budget forecast and an accompanying cash flow projection, broken down to monthly figures.
You've probably heard the saying "If you aim at nothing you'll hit it every time". This is absolutely true for business. Having a budget forecast paints a clearer picture of the revenue results your business needs to achieve each month and the anticipated costs involved in achieving those results. Once you formulate a budget projection you can then create a monthly cash flow that will indicate how much working capital (cash) you need to keep your doors open from month to month.
Like your focus, having a budget in place puts another check in your business system to determine when and if money should be spent. If you created your budget in a spreadsheet system, then you can quickly see how changes in your expenditure can affect your profitability and your cash flow.
For example while you might be presented with an excellent opportunity to promote your business through an advertising proposal, running the scenario through your budget and cash flow might indicate a cash flow short fall as you may have to pay for the advertising costs before you bank the anticipated sales.
As your business travels through your forecast period you should continually review and revise your forecasts to account for any significant changes in either your revenue or expenditure. Doing so will give you a more accurate reflection of your businesses cash requirement.
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