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Follow these six easy steps to forecast your company's finances for the year ahead

by , 09 January 2015
The year ahead is full of opportunities for you to grow your business. To do this, you need to prepare and plan.

But how do you prepare your finances and create a plan when you don't know what your company will face in the year ahead?

That's where forecasting comes in. It helps you 'predict' what might happen in your company's finances during the year.

This is an estimate that will give you a framework to create your financial plan and budgets around so you can really grow your business this year.

Follow these six easy steps to forecast your company's finances today...


Forecast your company's finances by following these six steps

Step 1: Predict your sales figures for the year
Look at your sales figures from the past three years. These will show you any patterns or trends in your sales figures. These will help you forecast your sales figures because if, for example, you made a huge profit in February but made a loss in April for the last three year, you can expect the same to happen this year. 
But you must also consider the economy at the moment and inflation. If prices go up but the economy is tight, people won't have money to buy your product. This means there will be a change is the kinds of sales you get. 
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Ten budget templates to forecast and manage your company's costs
You can use them individually or while you create your operating budget. You'll draw figures from these budgets so you can keep control of costs and maximise profit. Each budget chapter comes with a free Excel budget template for you to customise and use straight away.
Step 2: Work out how much it will cost you to produce each sale
If you sell products, work out what it costs you to manufacture or buy and then sell that product. This is your cost per unit. This will determine how much you need to charge for each sale.
Step 3: Calculate your variable expenses
These are the expenses that constantly change from month to month. Look at your financial documents from previous years to see how much your variable expenses can cost you. It's better to budget for these at the highest possible cost rather than under budget and be left wanting. 
Step 4: Add up your fixed expenses
These don't change so you can simply look at what they cost you last year. But take inflation into consideration and check if any of these expenses went up this year. 
Step 5: Add the fixed and variable expenses together
This gives you your total expenses. 
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Step 6: Minus your total expenses from the amount you expect to get from sales
This will show you the actual profit or loss you might make. 
If you see you made a profit, look for ways to maximise it. For example, can you try increase your sales figures to make even more profit? 
If your forecasting shows a possible loss, try correct this by finding ways to increase sales and cut costs wherever possible.
Following these six easy steps will help show you the problems and opportunities your company might face this year. Now you can plan your company's finances so you can take full advantage of every situation. 
As part of your planning, you need to budget. You can find ten budget templates to help you do this in the Master Budget Series

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