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Use these three steps to prepare your company's 2015 finances so you can prosper

by , 18 November 2014
2015 is six and a half weeks away. That means you need to start preparing for the coming year.

Leaving this until January 1st isn't an option. Your business will be without direction and you could end up making wrong decisions about your finances right from the start.

To avoid a financial mistake in January snowballing into a catastrophic financial loss, prepare your finances for 2015 starting today.

Follow these three steps so you can get your finances ready for 2015...

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Here how to get your finances ready for 2015 in three easy steps

Step 1: Analyse your 2014 finances
Financial analysis highlights any problems your finances faced in 2014 as well as its successes. For example, this analysis could highlight problems in company's budgeting and the affect of this problem.
It will also help you determine the impact of the economy, exchange rates and customer demands on your business.
According to smallbiz1.com, when you do your financial analysis, you should always look at your:
1. Income statement;
2. Balance sheet; and
3. Cash flow statement. 
Our Accounting experts believe the best tool to use when you do this analysis is Excel. You can pull specific data and create graphs to compare your 2014 finances against your previous finances.
And this information helps you perform the next step.
Step 2: Forecast your 2015 finances
Financial forecasting simply uses information from your financial analysis to predict what may happen in 2015.
For example, if your analysis shows that June and July are always slow months for your company, then you can predict the same for 2015.
Investopedia.com refers to these predictions as 'informed guesses' and they're right. But there are specific methods you can use to make these guesses as accurate as possible.
Two methods are:
1. Qualitative Models 
Qualitative Models are generally successful with short-term predictions, where the scope of the forecast is small. 
2. Quantitative Models
Quantitative Models eliminate the 'expert factor' and try to take the human element out of the analysis, according to investopedia.com. 
Forecasting helps you with the next step.
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Step 3: Budget for 2015
It's vital to budget your finances for 2015. Use your predictions to create a budget that will help you deal with potential problems in your finances. 
You have to consider a number of factors to create an effective budget for 2015. According to Joseph Anthony, an expert for Microsoft Business, there are ten questions you should ask yourself when you do this budgeting:
1. What are your assets?
2. What are your liabilities?
3. What does it cost you to produce what you sell? 
4. What does it cost you to sell what you sell? 
5. What's your gross profit margin?
6. What's your debt-to-asset ratio?
7. What's the value of your accounts receivable? 
8. What's your average collection time on accounts receivable?
9. What are your accounts payable? 
10. What's happening with your inventory?
By asking yourself these ten questions, you'll see what you need to include in your budget for next year. Also use your answers to determine what your expenses will look like depending on what they are currently.
Just remember when 2015 rolls around that you need to be flexible with this budget. Because you create your budget on educated guesswork, you may need to make changes if your predictions weren't right. 
So get your company ready for 2015 by following these three steps to prepare your finances.
For more on how to make your business's finances 2015-proof check out the Practical Accountancy Loose Leaf Service.

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