Checking the Financial Weather: Why Forecasting Income is Important
One of the primary aspects of business that can cause owners the most grief is cash flow. Determining what the expected income of a business will be is one of the most difficult forecasts to predict. However, building a forecast of your business' expected income can help you manage your cash flow in a way that grows your company.
Here are some details on why forecasting income for your business is an important part of cash flow management.
Before you can secure investors for your business, you'll need income forecasts to build their confidence in your enterprise. In its simplest form, an income forecast simply looks at what the projected income from your business will be over a particular period of time. However, the factors involved in the calculation can be truly mind-boggling.
For entrepreneurs who are just starting a company, expected income can be difficult to calculate. It's often easier to start your calculations with the anticipated expenses. This gives you and your financial backers an idea of what your business will need to bring in before a profit can be made. This can include your building payment, utilities, back office costs, advertising, payroll and similar expenses. Determine what these expenses will be for a set period of time, then determine how much income you'll need to cover those expenses. You may be able to draw from market studies with regards to how much income you can anticipate based on your customer demographics.
Once you've been in operation for a little while, building a forecast for your expected income becomes much easier. By basing your figures on past income and expenses, you can estimate where your income will go in the future. Do you have strong spikes of business in the spring and fall? High utility expenses mid-winter? You can use these figures to calculate potential cash flow issues.
By understanding why building a forecast of your company's expected income, you can build a better idea of how cash flow shifts during your financial cycles. If you need help figuring out how to forecast your company's expected income, the financial professionals at AccountRely are here to help. Contact us today to see how the AccountRely difference can help your business today.