From the course: Creating a Business Plan

Financial forecasts

From the course: Creating a Business Plan

Financial forecasts

“

- Your financial forecast is the heart of your business plan. Without a good forecast, you don't know if you even have a viable business, or what financial results you can expect. When you build your financial forecasts, build them from the bottom up, and build them by month based on unit drivers. So, how many courses are you going to sell? How many widgets are you going to produce? Understand how those drive the financial performance. You'll need to build a full profit and loss statement, with all line items accounted for, and use the assumptions you've already created to drive that financial forecast. You'll forecast your revenues, your costs, how much cash you'll have, what your balance sheet and income statement look like. And if you don't know how to do this, seek professional help from a financial firm. When you build your forecast, you're going to want to have several cases. Build a worst case, where you have accelerated and increased costs and delayed or lower than expected revenue. Build an expected case, which should be conservative. And build a best case, which is your costs are as expected and you have accelerated revenue. By looking at that complete picture, you'll understand, what happens if things don't go well and what happens if things go great? When I built my business, we forecast what our courses would cost, how many participants we would have in each class by month, how many customers we would be signing up, the number of classes we would sell, the number of instructors we would have, and when they would join the firm. We forecast what our materials would cost, as well as all of our selling, general and administrative costs, like legal assistants, financial assistants. And I had a worst case, a base case, and a best case scenario. What was great about that was, as I learned more and looked at my assumptions I initially made, I was able to tweak them based on new information, and see how my financial forecast would change. Invest the time in building forecasts that are as accurate as you possibly can, because they're going to tell you what your business will look like in the future, and help you plan accordingly.

Contents