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.
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:
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.
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!
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.
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.
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