Projections are critical to knowing whether your profit and loss and balance sheet forecasts are realistic, especially if you will use these projections to obtain financing or attract investors. Whether you’ve finished your 2024 projections or not, here are 3 tips you need to know to put the finishing touches on your forecast for next year:
1. Look for tendencies in your forecasting to gain insights on things you can do to improve next year.
- Did you overestimate revenue and profits? Maybe you were a little too ambitious on your revenue assumptions?
- What about collections from clients and payments to vendors? Did you accurately forecast the timing of those payments?
2. Compare your assumptions on revenue and expense growth compared to your:
- Historical performance.
- Industry norms and standards.
- It’s possible you’re outperforming your peers in some areas, but underperforming in others. Know your tendencies.
3. Forecast from the bottom up, not the top down. It’s not how much you bill, but how much you keep.
- Plan profit first, then expenses, then revenue.
- Compare your forecasted revenue number based on what you discovered in #2 above.
- If your revenue number is too high based on that, then consider either adjusting your profit number or cutting expenses.
Many business owners will have several rounds of assumptions before they end up with a forecast they’re comfortable with. Remember, it’s important to forecast not only your income statement, but also your balance sheet and cash flow statement to get a complete picture of your business. Here’s to a great 2024 for all of us!
