By John Corban
The financial year finished recently, so now is the time to plan your profits for 2022. I strongly suggest that you don’t just hope that sales and profit are going to be good in 2022. Instead, create a plan to earn the sales and profit you really want.
The first step in this plan is called a ‘Financial Forecast’, and it’s done by looking at your 2021 Profit and Loss (P&L) and predicting the next twelve months of sales, expenses, and profits.
Is it accurate?
The predicted sales and net profit are quite accurate because it is created based on past data and using the last two quarters to help guide patterns.
The exercise is simple because you already know what your regular staff expenses will be for the next year. The same applies for all your operating expenses. Some expenses (like a vehicle) may end up costing you more in servicing over the next year, but some other expenses will be lower, allowing overall expenses to balance out. Materials or supplies can also be predicted based on last year’s percentage in relation to sales.
How do you create a ‘financial forecast’?
Your accounting software has a function to allow you to build a forecast. If you look at your P&L (in your accounting software) over the last couple of years, you will notice that sales increase by a certain percentage each year, so sales can be estimated based on the percentage increase.
Staff wages can be calculated based on the current team’s wages going forward.
In your 2021 P&L, other major expenses like supplies and sub-contractors can have a percentage calculated that is relative to sales, thus allowing these amounts to be entered, and operating expenses will be easy to predict as many of these expenses will remain similar.
Can I afford to hire a new team member or buy expensive equipment?
A financial forecast will answer this question once you create your first draft. If you find that the predicted profit isn’t enough to allow for a new employee’s wage, you can include the wage and see what projected sales targets need to be, to cover the new wage. The same applies to equipment.
A financial forecast becomes a tool to motivate you to hit your new and realistic sales and expenses targets, understand a lot more about the financial side of your business and to know in advance, what profit you can make in 2022.
So, I urge you to spend some time doing this properly, and you will have a great tool to motivate and guide you to achieve a better financial outcome for 2022. Then work on your plan to make it a reality.
If you need any help, please do not hesitate to contact me.
Business Coach for Landscapers,
Horticulturists and Nursery owners
M: 0433 271 980