So you have a business plan, you know exactly what you are going to do and how. The only question mark is how much is it all going to cost and how much money you can make. A business plan shows great potential. However, to really ground your business you need hard stats and quantifiable data. To do this you will need to prepare three key documents – the Target, the Forecast and the budget.
This is basically a document that details how much money you think will earn and how much you will pay. The first thing you need to do is predict what you will be spending your money on, the more detailed this section the better. So sit down and start from the bottom up – what you need for the day to day running – even including basic items like paper, pen, office snacks (a necessity for any business) moving gradually upwards to the larger essential items like computers and furniture. Then write how much you expect from your projected sales. These should be realistic targets based on data you have gathered. It may not be the most exhilarating part of starting a new business. However if you are realistic about projections and expenditure you will have a fantastic tool with which to help monitor your performance, support your decision making process and manage your staff.
A forecast is slightly different from a budget; demonstrating the financial outcome based on the assumed. From analysing current trends and understanding your market you should be able to create a document that explains what should happen – all things being equal. The forecast works with the budget – allowing you to compare and contrast what you thought would happen to actual events. Whilst, unfortunately no one can predict the future, otherwise I would currently be sunning myself on Richard Branson’s Caribbean Island and mentally preparing for my launch into space paid for by my stupendous lottery winnings. A forecast will not only keep you in check, but also help if you desire a bank loan or to raise some investment capital.
As children we would drive our parents mad asking, “what if” questions. ‘What if the sky was green’ ‘What if I was adopted,’ ‘what if the entirety of Greece goes bankrupt – will that affect my plans for a business empire?’ Perhaps not the last one, which is the sort of hypothetical that should be included in your Financial Projection. Possibly more realistic questions are queries over the results of doubling in size or facing an economic downturn. Projections are also based on current statistics – how much you earn, how much you spend and how this would be affected when faced with either an obstacle or an opportunity. It is not only a break from dealing with actual issues, but also means you are prepared for any eventuality. And if it works for the Girl Guides it can only help your business.
If you are struggling with any of these please feel free to give us a ring on 0208 492 8800. We love talking to entrepreneurs and are always on the other end of the phone, ready to offer some advice.
Andrew Rhodes – Managing Partner