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How to do Financial Forecasting
Manage episode 350439485 series 2937877
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Free Forecast Template
Wealth Building Framework Sneak Peek
Forecasting financials for the next year can be a daunting task. Sometimes it feels like a guessing game or worse, pointless. But after following these steps of the best way to forecast revenue and expenses, you’ll have a roadmap to guide you to success the way you want it.
Best Way to Forecast Revenue
You are going to start with forecasting your revenue by month.
Very first thing is to list out all of the services and products that you currently sell or want to sell in the upcoming year in the template. I'll show you an example in just a second.
Here are some questions to consider when thinking through what your revenue is going to be like for next year?
· Are you offering any new services?
· If you are, when will those be ready?
· Are you going to rearrange any type of existing services?
· Are you stopping them all together?
· How many units of each service do you think you're going to need to sell?
· And what's your price on those?
Best Way to Forecast Expenses
Next, you're going to look at expenses. First, look at expenses directly related to revenue, just those expenses. Now looking at new revenue, think through what expenses are going to be leading up to that new revenue. With a digital course as in the example, there's probably some contractor payments that maybe you’ll have before you actually ramp up.
It's important to forecast these out in the months they will happen before you have the revenue so that you can see where your cash balance is.
After you’ve forecast expenses that are directly related to your revenue, it’s time to go back and look at your historic expenses. What I am not going to do is take an average of my historical expenses and put them in my forecast. That is not forecasting. That's not even budgeting. That's just not good. Don't do it.
Look at each and every expense and take the time to determine if the expense helps you keep customers or helps you get new customers. That's an idea I got from a book written by Keith Cunningham.
Forecasting Financials is Worth Your Time
Proper forecasting does take time. And it’s going to be some of the most worthwhile time you put into running your business, because then you’ll have a roadmap of what you want to accomplish.
And don't stop forecasting and making changes to your forecast until you're happy with the result. Plan each month so you're happy with the net income it's going to offer, you're happy with your take home pay, you're happy with the growth.
Do all that on paper first, and now you have this roadmap so that each month you can compare how you did to what you wanted to do.
John Briggs | Tax Genius
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