Developing Financial Projections

Developing Financial Projections for NonFinance People This White Paper gives you the tools to answer the two most important questions any business must ask: “Are you financially prepared to begin? Are we able to sustain ourselves? ”
You’ll learn: 

What’s on financial statements and how they get there
How to develop and understand income statements
How to set up and read balance sheets
How to use common formulas to evaluate cash flow
How to create a budget using standard guidelines
How to read and evaluate income projections
How to develop your own financial projections through a “fill in the blanks” approach”
How to accurately determine the value of your idea or business

Don't use plagiarized sources. Get Your Custom Essay on
Developing Financial Projections
Just from $13/Page
Order Essay

This memorandum is provided by Public Company Management Services for educational purposes only and is not intended and should not be construed as legal advice. Managers must ask, ‘is the business financially prepared to begin/continue’? Understanding basic budgeting guidelines, income projection statements, balance sheets, and common formulas to evaluate cash flow help ensure successful operations. This financial knowledge significantly impacts a company’s short term and long term success.
Personnel (costs prior to opening) legal/professional fees occupancy licenses/permits equipment insurance supplies advertising/promotions salaries/wages accounting income utility payroll expenses. An operating budget is prepared when you are actually ready to open for business. The operating budget will reflect your priorities in terms of how you spend your money, the expenses you will incur, and how you will meet those expenses (income). Your operating budget also should include money to cover the first three to six months of operation. It should allow for the following expenses.

Personnel insurance rent depreciation loan payments advertising/promotions legal/accounting miscellaneous expenses supplies payroll expenses.
Other questions that you will need to consider are:
What type of accounting system will your use? Is it a single entry or dual entry system?
What are your sales and profit goals for the coming year? If a franchise, will the franchisor set your sales and profit goals? Or, will he or she expect you to reach and retain a certain sales level and profit margin?
What financial projections will you need to include in your business plan?
 What kind of inventory control system will you use?

The income projections (profit and loss) statement is valuable as both a planning tool and a key management tool to help control business operations. It enables you to develop a preview of the amount of income generated each month and for the business year, based on reasonable predictions of monthly levels of sales, costs, and expenses. As monthly or quarterly projections are developed and entered into the income projections statement, they can serve as definite goals for controlling the business operation. As actual operating results become known each month, they should be recorded for comparison with the monthly projections. A completed income statement allows you to compare actual figures with projections and to take steps to correct any problems. Industry Percentage In the industry percentage column, enter the percentages of total sales (revenues) that are standard for your industry, which is derived by dividing Costs/expenses items x 100% These percentages can be obtained from various sources, such as trade associations, accountants or banks. Industry figures serve as a useful benchmark against which to compare cost and expense estimates that you develop for your firm. Compare the figures in the industry percentage column to those in the annual percentage column. Total Net Sales (Revenues) Determine the total number of units of consulting service you realistically expect to sell each period (per month or quarter) in each area of your business at the prices you expect to get. Use this step to create the projections to review your pricing practices. Exclude any revenue that is not strictly related to the business. Cost of Sales
The key to calculating the cost of sales is that you do not overlook any costs that you have incurred. Calculate the cost of sales of all services used to determine total net sales. Do not overlook transportation or travel costs if you’re working at a distance. Also, include all direct labor. Gross Profit Subtract the total cost of sales from the total net sales to obtain gross profit. Gross Profit Margin The gross profit is expressed as a percentage of total sales (revenues). Payroll expenses-Include paid vacations, sick leave, health insurance, unemployment insurance, and social security taxes – may or may not be applicable. Outside services-Include costs of subcontracts, overflow work, and special or one-time services. Supplies-Services and items purchased for use in the business. Repair and maintenance-Regular maintenance and repair. Advertising-Include desired sales volume and classified directory advertising expenses. Car delivery and travel-Include charges if the personal car is used in business, including parking, tolls, buying trips, etc. Accounting and legal-Outside professional services.
Figures used to compile the balance sheet are taken from the previous and current balance sheet as well as the current income statement. The income statement is usually attached to the balance sheet. The following text covers the essential elements of the balance sheet. At the top of the page fill in the legal name of the business, the type of statement and the day, month, and year. List anything of value that is owned or legally due to the business. Total assets include all net values. These are the amounts derived when you subtract depreciation and amortization from the original costs of acquiring the assets.  Cash-List cash and resources that can be converted into cash within 12 months of the date of the balance sheet (or during one established cycle of operation). Include money on hand and demand deposits in the bank, e. g. , checking accounts, and regular savings accounts. Petty cash-If your business has a fund for small miscellaneous expenditures, include the total here.
Accounts receivable amounts due from customers in payment for merchandise or services. Inventory-Includes raw materials on hand, work in progress, and all finished goods, either manufactured or purchased for resale. Short-term investments-Also called temporary investments or marketable securities, these include interest- or dividend-yielding holdings expected to be converted into cash within a year. List stocks and bonds, certificates of deposit and time-deposit savings accounts at either their cost or market value, whichever is less. Prepaid expenses-Goods, benefits, or services a business buys or rents in advance. Examples are office supplies, insurance protection, and floor space. Long-term Investments Also called long-term assets, these are holdings the business intends to keep for at least a year and that typically yield interest or dividends. Included are stocks, bonds, and savings accounts earmarked for special purposes. Fixed Assets Also called plant and equipment. Includes all resources a business owns or acquires for use in operations and not intended for resale. Fixed assets may be leased. Depending on the leasing arrangements, both the value and the liability of the leased property may need to be listed on the balance sheet. Land-List original purchase price without allowances for market value.

Furniture a Computers

Liabilities Current Liabilities List all debts, monetary obligations, and claims payable within 12 months or within one cycle of operation.
Typically they include the following:

Accounts payable-Amounts owed to suppliers for goods and services purchased in connection with business operations.
Notes payable-The balance of principal due to pay off short-term debt for borrowed funds. Also includes the current amount due to the total balance on notes whose terms exceed 12 months. Interest payable-Any accrued fees due for use of both short- and long-term borrowed capital and credit extended to the business.
Taxes payable-Amounts estimated by an accountant to have been incurred during the accounting period.
Payroll accrual-Salaries and wages currently owed. Long-term Liabilities Notes payable-List notes, contract payments, or mortgage payments due over a period exceeding 12 months or one cycle of operation. They are listed by outstanding balance less than the current position due. Net worth Also called owner’s equity, net worth is the claim of the owner(s) on the assets of the business.

Order your essay today and save 25% with the discount code: STUDENT

Order a unique copy of this paper

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
Top Academic Writers Ready to Help
with Your Research Proposal
Live Chat+1(978) 822-0999EmailWhatsApp

Order your essay today and save 25% with the discount code COCONUT