5 tips for creating accurate projections
For some, forecasting how much money you make is a simple case
of drawing a line from the bottom left-hand corner, to the top
right-hand corner of a graph. In reality, making an accurate
forecast of where you'll be in one year's time is a touch more
complicated.
You see, predictions should never be finger-in-the-air, start
with the word 'about' or end with the suffix 'ish'. There's no
point in a prediction that is optimistic, because when your costs
surpass your sales that graph will be no help at all.
Be realistic
Only a handful of companies make a profit in the first year, and
unless you have a ready supply of clients waiting in the wings,
winning new business will be a real challenge in the first 12
months of your business' life. So be realistic about what you can
achieve in year one.
Below is the biggest mistake any start-up can make when
forecasting profits:
- Take the size of the market (money spent, units shifted every
week etc)
- Divide it into very small pieces
- Think that if your business won just one of those tiny pieces,
you'd be rich
- Realise too late that winning a tiny piece of anything is
harder than it looks
It's much better to form your projections based on supply and
demand in your market (high demand, low supply is good) as well as
how loyal people are to your competitor's products and services
- could you prise them away with a well-timed marketing
campaign?
In general the terms 'less is more' and 'expect the unexpected'
work well; the next months will be potted with surprises and not
all of them will be good.
Be pessimistic
There's one thing better than being a realist when it comes to
predicting end of year profit and loss, and that's being a
pessimist. It's a cliché, but it pays to double the amount you
think you'll spend and halve the amount you reckon you'll take in
sales.
There's nothing worse than falling short of your own
expectations - and nothing better than surpassing them!
Don't pay yourself
One of the biggest drains on a start-up's resources is salary
payments - and that includes yours. Hitting your financial targets
will be a lot easier if you either rely on savings for your living
costs, or maintain a separate income from your business.
Cost cut
Following on from the last point, any financial targets you make
will be a lot easier to hit if you cut the fat out of your spending
plans. Don't forget that (technically at least) every penny you
part ways with takes you one penny further away from
profitability.
If you're aiming for a £20,000 profit, for example, then you
need to spend £20,000 less (including taxes) than you receive in
sales. So close the office, forgo the expensive kit, dump the
company car and, in general, make your business as lean as it can
be.
Take your time
Most entrepreneurs just want to get on with it, they hate
business plans and they hate preparing to write business plans even
more. Fair enough. But know this: the more time, research and
effort you put into your predictions the more likely they are to
come true.
When you finish charting future growth, sit back and ask
yourself what those expectations are based on. Unless the answer is
a long list of real-world factors (conditions in your market; the
economy - local, national and world; competitors - factoring in new
competitors and the fact that existing ones might grow; sickness;
capital expenditure…the list goes on), then start again!
This guide is in association with
