Andrea is working on forecasting her financial statements for her consulting business. Discuss three suggestions for Andrea to make her forecasting more effective.

Question

What will be an ideal response?

Answer 1

Andrea should:
- Develop realistic sales projections.  Make sure sales goals are attainable.  What is realistic for a new consulting business in her area?
- Build projections from clear assumptions about marketing and pricing plans.  She should not guess or be vague.  The specific marketing strategies to be used should be given.
- Not use unrealistic profit margins. Andrea should determine what the industry averages are and not expect to exceed them in the first years.
- Not limit her projections to an income statement. Potential investors want to see the assumptions and both the balance sheet and cash flow statements.
- Provide monthly data for the upcoming year and annual data for succeeding years. She should provide believable information for the three to five year period using monthly for the first year, and annual for preceding years.
- Avoid providing too much financial information.  Andrea should prepare two scenarios; the most likely case scenario and the break-even analysis to provide adequate information.
- Be certain that the numbers reconcile -- and not by simply plugging in a figure.  Numbers should be checked to make sure they match up with other information.
- Follow the plan. She should check statements against actual results at least once a month and then modify projections as needed.