As a small-business owner, it’s important to know your company back to front -- including, and perhaps most crucially, your finances. Perhaps the most important thing about creating a budget for your business is making sure you have your finances in order, and part of that is forecasting and making projections to see how your business will fare based on your current financial trajectory.
Let’s step back and look at some suggestions on what you should include in your financial projections and how best to make those forecasts so that your business can profit.
1. Why should you make financial projections?
Forecasting where you will be in the future from a budgetary standpoint is a great idea for several reasons. Financial projections are based on external and internal accounting data that has been compiled thanks to the transactions you are doing every day during the operation of your business. You can predict how successful your business will be if you make these kinds of projections -- so why wouldn’t you at least try?
For instance, for a boutique women’s clothing store, creating a business plan and financial projections can help you see where you would lose customers or where you stand to gain the most profit. Maintaining a quality product and having the inventory to service your clientele is important; sales personnel also must have knowledge of high fashion to help customers feel comfortable with their expertise.
2. What kinds of statements should you include?
Financial projections should include several kinds of documents to provide an accurate picture of the work you’re doing and how your business can be successful in the future. These documents include:
- Income statement -- Shows where you’re making money and how your profits stack up
- A balance sheet -- Shows your total net worth, assets, and liabilities, generated on a quarterly or monthly basis
- Cash flow statement -- Shows how cash flowed in and out of the business
If you maintain all these documents and include them in your projections, it’s possible to depict what your business will look like in terms of financials in the future. Just make sure to keep detailed records.
3. What kinds of apps should you use?
Technology is becoming important for every industry to use to be more efficient, work more effectively, and create greater success. Small business owners especially should pay attention to the software, apps, and technologies that they can use to keep their organizations on track.
For example, accounting software ensures that you make more accurate projections and keeps you better organized so you can achieve your goals more efficiently. This kind of software will integrate across workflows and enable you to manage payroll right from your smartphone or tablet and run those reports and statements we identified above (income statements, balance sheets, and cash flow statements). Reports can be tailored to your specific needs, helping you make informed financial decisions and allowing you to manage your business more effectively in the long and short term.
How can you improve your financial knowledge?
Give your financial acumen a boost by going back to school and getting an accounting degree. Learn about general accounting principles and how to evaluate financial statements and integrate business practices. The easiest way to earn a degree is through an online program that lets you work when you’re able so you can still focus on running your business.
Now that you have the answers…
You have the answers to your frequently asked questions about technology, financial projections, and business. Now it’s time to take that information and apply it to your business to achieve greater success and provide better products and services to your customers.
WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.
About the Author
Jim is a retired banker with almost 30 years of experience. He created Money with Jim® to share his advice and other resources on a variety of financial topics.