Advice on how to prepare forecasts for a new fashion boutique for women.
Financial planning and forecasting is a continuous process that assist in allocation and directing business finances in order to meet the vision and goals of business (Lee, 2009). In this new business, Tina needs to have a budget, either in a budgeted financial statement form, or a Pro Forma (Wahlen et al, 2011). There is need for a consideration on the demand and sales forecasts, and other estimates that support the financial plan. There is need for planning on financing the boutique, and for operating the new business.
The first step, therefore, would be to have a strategic plan. This involves a connection of the intended business to available budget or income. Tina needs to establish long run goals and objectives outline them in the strategic plan, and assess the external environment in comparison to objectives (Lee, 2009). The implementation of the plan will also involve a complete set of the budget or financial plans.
Crucial financial statements.
- Cash flow forecast.
This indicates the expected future movements of cash in or out of the partnership. It is an estimate of the receipts and payments, and the projections in income and expenditure. It is a prediction on future cash surpluses and shortages. It allows planning for tax, acquisition of capital and in making decisions on business loans. It also provides prior warning and allows for prior remedy for shortcomings (Lee, 2009).
- Establishment costs.
This comprises of the available cash and means of obtaining extra cash, if needed (Wahlen et al, 2011). It involves an accurate estimation on all costs incurred in stating a business. It is crucial to have an accurate estimate of these expenses to avoid leaving out some expenditure in the budget. The estimates allows for a creation of an allowance that caters for contingencies. It also establishes the ratio of ownership in a partnership.
- Sales forecast.
This is an estimate of sales and establishes the level of sales used in other forecasts like the budget and income statements (Wahlen et al, 2011). It ensures market intelligence, analysis of consumer behavior and the relevance of marketing strategy. The forecast is used in making predictions on future growth.
- Cost of goods sold forecast.
This answers the question on the cost of stock in a business. The forecast includes all direct costs of getting the products like fright insurance, warehousing, commissions etc. This ensures that all costs are accounted for, and allows effective auditing procedures.
- Expenses forecast.
This is an estimate of overheads, fixed costs and outgoings. It answers the question on how much is needed in running a business. The inclusion of this statement provides a platform on profit and selling price determination (Lee, 2009). It also increases accountability and reduces cases of frauds in partnerships, as in the Sarbanes-Oxley Act.
Reference.
Lee, A.C., Lee, J. C., & Lee, C. F. (2009). Financial analysis, planning & forecasting: Theory and application. Singapore: World Scientific.
Wahlen, J. M., Baginski, S. P., Bradshaw, M. T., Stickney, C. P., & Brown, P. R. (2011). Financial reporting, financial statement analysis, and valuation. Mason, OH: South- Western Cengage Learning.
