Do you know what your financial position is going to be like in three months’ time?

Most business owners do not know what their financial position will be next month let alone three, six or twelve months in advance. What impact would knowing where your business will be financially in say, three months’ time have on your business?

Here are five steps to get you on the road to foretelling the future in your business.

  1. Set a budget
    Plan your goals and set yourself targets in terms of your turnover as well as related costs. Consider what you want to happen in your business. What do you want to achieve in terms of revenue based over the whole year and then broken down on a monthly basis?
  2. Track your progress
    Track what you plan against what actually happens and compare the two outcomes. Measure and track, measure and track, measure and track. That is the only way that you are going to be able to forecast what your financial position will be in three, or six, or even twelve months’ time.
  3. Tweak your plan
    Adjust your plan to help you reach your goals. This is where you tweak your budget as the months go by. You want to make sure that the variance between what you plan to happen and what actually happens gets smaller and smaller each month giving you the ability to accurately forecast income and expenses for your business.
  4. Analyse the difference
    Find out why differences occur and what has happened to take you off track. This will enable you to narrow the difference between what you want to happen and what actually happens. The more you do this, the more accurately you will be able to forecast what will happen in coming months.
  5. Recognise the difference
    Now that you are forecasting pretty accurately in terms of the performance of your business, the performance of your revenue and the performance of your expenses, you need to consider off Profit and Loss payments – outgoings that are going out of your bank account which do not appear on your Profit and Loss Statement. These include payments you make to the tax office, loan repayments, hire-purchase agreements and business owner drawings that are not part of a wage or salary.

By encompassing what has happened in steps one, two, three and four, your Profit and Loss Statement, and then bringing in step five, your bank account, you are now able to see what the true financial position of your business will be in three months’ time.

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