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- iHaveNet.com: Small Business Guide
Small Business Money Matters
Every entrepreneur and small business owner will need to make reliable financial projections at one time or another.
Reliable financial forecasting is critical at many stages of a company's life -- when it is looking for financing, when it wants to gauge the potential profitability of a new product or service, when it wants to see the impact of staff expansion or cutbacks, or when it needs to assess other important business decisions.
Coming up with reliable projections isn't guesswork. It requires you to analyze market research, trends, and business assumptions to come up with a reasonable forecast. When you're done, you'll have a realistic idea of costs and profits.
Use these guidelines to begin the reliable financial projection process.
Determine your expected market share
Research your industry to determine the total market for goods and services like yours.
This figure can serve as a base for determining the percentage of the market your company can realistically expect to capture, which is your expected market share. Multiple factors can influence expected market share, like the amount of competition already established in your area, the number of distributors you have in place, and your industry's growth rate. It's important to analyze the market carefully to come up with the most realistic projections possible. Be sure to document any trends you uncover.
Add up business expenses
Account for the amount of money that will be flowing out of your business each month.
In general, these expenses will be in line with your industry's norms. There may be circumstances, however, that make your company's expenses in a particular area higher or lower than other businesses' expenses. For example, if you buy parts domestically and most competitors have contracts with less expensive overseas vendors, your expenses for materials may be higher than the industry average.
Identify a realistic business growth rate
To come up with reliable financial projections, you'll need to estimate a reasonable growth rate for your business.
You can do this by reviewing industry growth figures and spotting market trends that may affect sales going forward. Keep in mind that most businesses grow gradually. Assuming skyrocketing sales in your first three months of operation is likely to label you as a novice to investors and lenders that review your projections. Also, if your figures are at odds with your industry's norms, turn a critical eye to them. If there is a reason they are higher or lower, such as an existing contract that guarantees a specific monthly income or high seasonal sales, document these unusual circumstances carefully.
Provide multiple scenarios
Building out different financial outcomes for your business can give you a more accurate picture of the revenues you can expect.
Develop a best-case scenario that assumes the most aggressive growth rates, as well as a worst-case scenario that takes into full account potential risks. Between these two extremes will be the most likely financial scenario for your business, which is likely to include gradual business growth and both planned and unanticipated expenses. This exercise will show potential investors and bankers that you understand all the factors that will influence your company's success.
Back up your assumptions
To be confident in the figures you come up with, back them up with solid research and reasoning.
If you plan on 50 percent revenue growth during your first year, demonstrate how that growth will happen. Are your projections based on industry norms? Will you run extensive marketing campaigns? To provide additional support to your assumptions, do some basic first-hand market testing of your concept.
Talk to an accountant
Review the results of your calculations with your accountant or financial advisor.
He or she can tell you if they are in line with generally accepted accounting guidelines and your industry's norms. If they're not, your advisor may be able to recommend ways to adjust them.
Small Business Guide
- Starting Up Your Business
- Coming Up With a Winning Business Idea
- Common Startup Mistakes
- The New Rules for Startups
- Business Incubator FAQs
- Naming Your Business
- Researching Your Business
- Your Personal Savings
- Registration, Licenses, and Permits
- Getting a Tax ID Number
- Fast-Growth Startup Resources
- Structuring Your Business
- Overview: Corporations
- State Offices of Incorporation
- Incorporate Out of State?
- Writing a Partnership Agreement
- Choosing a Board of Directors
- Basics of a C Corporation
- Basics of an S Corporation
- Basics of an LLC
- Basics of a Sole Proprietorship
- Basics of a Non-Profit Corporation
- Basics of a Professional Corporation
- Basics of a General Partnership
- Basics of a Limited Partnership
- Your Company's Public Relations
- Elements of a Successful Public Relations Campaign
- How to Use Your Press Coverage Effectively
- Press Releases
- How to Write a Successful Press Release
- Sample Product/Service Press Release
- Sample Commentary Press Release
- Sample Event Press Release
- Sample Tips Press Release
- Sample Personnel Press Release
- Effective Competitive Analysis
- Managing Purchasing to Maximize Cash Flow
- Top Six Pricing Mistakes Businesses Make
- How to Avoid Lowering Your Prices
- Bidding Basics
- Hiring Staff
- Creating an Effective Job Description
- Do You Know How to Pick Them?
- Little-Known Hiring Resources
- Classifying Contract Workers
- Tips for Successful Interviewing
- What You Can't Ask in a Job Interview
- New Hire Paperwork
- Small Business Insurance
- Types of Insurance for Small Businesses
- Small Business Insurance FAQs
- Insurance Resources for Small Businesses
- Home Office Insurance: Myths & Realities
- Small Business Resources
- Government Resources for Small Business on the Web
- Resources for Women Entrepreneurs
- Fast-Growth Startup Resources
- Small Business Security Resources
- Taking Time Off
- Your Pre-Vacation Checklist
- How to Take a Vacation
- Learning to Delegate
- Getting Away When You Can't Get Away
- Preparing for Tax Season
- Year-End Planning Tax Savers
- 10 Ways to Pay Less in Tax
- 25 Common Business Deductions and Expenses
- Avoid These Common Errors and Audit Triggers
- Understanding the Home Office Deduction
- Corporate Income Taxes Primer
- Employment Taxes Primer
- Sales Tax Primer
- Sole Proprietorships and Partnerships Tax Primer
- How to Get a Filing Extension
- Year-End Reconciliation
- Getting the Most from Your Accountant
- Developing Accurate Financial Projections
- Cash Flow
- 10 Ways to Help Increase Your Cash Flow
- Cash vs Accrual Accounting
- Bookkeeping and Record Keeping Basics
- Quick Ways to Get Through a Cash Crunch
- Projecting Cash Flow
- Cash Flow Triage
- Getting Funding
- Cash Flow Through Factoring
- Small Business Investment Corporations (SBIC)
- Traditional Funding Sources
- Non-Traditional Funding Sources
- Your Company's Credit
- How to Read a Business Credit Report
- Credit Terms Glossary for Your Small Business
- How to Protect and Improve Your Business Credit Rating
- Give Your Business the Financing Edge
- Employee Compensation
- Employee Benefits
- Bonuses: How To Be Fair
- Workers' Compensation Q&A
- Keeping Workers' Compensation Costs Down
- Payroll Management Choices
- Key Elements of Payroll
- Working with a Payroll Service Provider
- How to Create a Business Plan
Small Business Money Matters - How to Develop Accurate Financial Projections for Your Small Business
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