MONEY AND BUSINESS

Drawing up the financial projections part of your business plan

How will your business perform?

Drawing up a forecast of how well a business will perform over a period of time is a crucial component of a business plan. In order to determine the feasibility of a business and to plan for its success, it is imperative to include a financial projection.

The economic viability of a company is of utmost importance because that is often the determining factor as to whether or not it is a rational decision to proceed with such a business venture.

Also, most business startups and expansion plans require external funding, and financial projections are used by investors and lenders to decide if it is a good investment to undertake.

Period of forecast: The forecast is usually done for a minimum of three years, but most lending institutions and investors prefer to see a five-year time period. Draw up your forecast for a longer period should you realize that if, according to your projections, it will take longer to realize a project. The reason for this is because you will need to show the break-even point by calculating a break-even analysis. Therefore, if the business is already profitable by the second year of operation, then a three-year forecast may suffice. However, in a situation wherein you are starting to break even in year three then a five-year projection will be more beneficial.

Financial statements: The financial statements to be completed are an income statement, balance sheet and a cash flow statement.

The pro forma income statement, often referred to as the profit and loss statement, is intended to show whether the company is expected to make a profit or a loss. The entries made in this statement are the forecasted income/revenue generated by the business, cost of goods sold and all the expenses to be incurred. To arrive at your revenue figure, you are expected to conduct research into the market to ascertain what your pricing strategy should be and the expected demand or sales for the particular product or service that you will be offering. It is also necessary to consider your hours and days of operation to get a true reflection of the sales potential. If the establishment is already in operation, then the forecast should be based on previous years’ financial statements.

In regard to your cost of goods sold and expenses, there will be a need to make assumptions regarding the percentages to be used. Based on the industry and the type of business, the percentages for projecting expenses could vary, so you will need to do a thorough analysis to arrive at the most realistic figures. Typical expenses are rent, salaries, insurance, utilities, depreciation, interest, taxes and so forth.

The pro forma balance sheet is used to identify the assets, liabilities, owners equity and retained earnings. The fixed assets are land, buildings, furniture and equipment and the prices are best determined by gathering quotes if they have not yet been acquired. Some current assets like inventory and accounts receivables are also based on reasonable percentages of sales.

Similarly, current liabilities like accounts payable will also be expressed as a percentage. The premise is that these figures are not definite and are simply a forecast based on the given situation. The owner's equity or capital is what you have personally injected into the company and the retained earnings will be profits that have been made from the business. Any loans already taken or anticipated should be identified as a liability.

The balance sheet, as the name suggests, should balance, meaning that the assets should equal the total of liabilities, owners equity and retained earnings.

The pro forma cash flow statement is used to show the cash inflows and outflows of a business. It gives valuable information about the movements of cash and the overall liquidity of the company. In this statement, you are expected to show cash flow from operations, investment and financing.

Though the task of projecting the financials of business may seem very daunting, you can overcome the challenge by understanding the typical entries to be included in the various statements and base your numbers on realistic assumptions.

Sharee Aluko has a Masters in Business Administration and owns a business consultancy firm. She also teaches business courses at the college-level on a part-time basis.

Calgary Campus

Developmental Service Workers (DSWs) are ALWAYS in high demand!

DSW Diploma in just 45 weeks;

Starting December 6, 2021 at CLI College, Calgary

Call 403-475-2985

LIVE IN A LEGEND

Situated at the fashionable intersection of Yonge and Bloor in midtown Toronto, The One is destined to be talked about for years to come. Designed by world-famous architects at Foster + Partners, The One is a golden beacon that reshapes the skyline of the city as the tallest building in Canada.

Real estate in Toronto is in high demand, but many of the condominium buildings are similar. The One is unlike any other with its hybrid exoskeleton, a feat of structural engineering which puts much of its support on the outside, allowing sunlight to penetrate deep into the interiors with a minimum of obstructing pillars. As a result, the residences are luminous glass palaces that you can design in any configuration you wish. Many of the windows open to the fresh air.

Every aspect of The One has been thoughtfully designed. Mizrahi Developments set out to research the latest advances in smart technology and sourced materials in a palette of burnished silver, bronze and gold to create a tower that honoured the importance of its iconic address and location in the heart of the country’s leading luxury marketplace.

Flagship stores for some of the world’s top global fashion brands are steps away on Bloor Street West. The quaint village-like neighbourhood of Yorkville is around the corner. Restaurants, galleries, museums and the beautiful campus of the University of Toronto are all within a pleasant 10-minute walk.

This is your chance to own part of a legend. It’s an investment in one of the most innovative architectural masterpieces in Canada.

75% sold. Construction underway. We invite you to find out more at www.onebloorwest.com Or call today for an appointment at our Presentation Gallery.

1-844-SEE-THE-1 ONEBLOORWEST.COM