Building a quality forecast allows you to put all the chances on your side to secure the short and medium term activity of a business or a creation project.

Financial Provisionals Summary:
Why make a forecast?
How to make a forecast?
Management assistance tools from the forecast
The forecast: conclusion

However, carrying out the forecast is often a complicated process for the project leader who finds himself torn between the desire to present elements that are both synthetic and ambitious.

What approach should be adopted to produce this management tool which measures the relevance of the solutions envisaged and facilitates decision-making by the manager?

WHY MAKE A FORECAST?

The forecast is a management and anticipation tool that contributes to the profitability of a project in creation or already operational. It allows:

• to assess the development prospects of the project as well as to measure the risks weighing on the activity,

• to imagine, simulate and measure the consequences of the solutions that can be considered,
  to make a choice on a provisional budget and then monitor and measure the difference between the reality of field figures and forecasts using a dashboard.
  
  

Note : Beyond the visibility and costing that the financial forecast provides, it is also a real tool for training the creator and helping to manage the company, particularly through the simulations it allows.

HOW TO MAKE A FORECAST?

The construction of a forecast does not happen in a few hours because this tool is not a simple pooling of a few figures. Carrying out a financial forecast requires a rigorous process to be carried out in several successive phases.

Strategic analysis prior to the financial forecast

The strategic analysis prior to the forecast The first step is to identify the short-term development possibilities (or the creation project) (1 to 2 years) that can be envisaged for the company, and the difficulties that may be associated with them. . This step requires having a clear idea of ​​the medium-term business plan (5 years), of its sector of activity and of the means to achieve its objective.

For this phase, the manager or creator will need to answer a number of questions in order to define the main strategic orientations:

• What direction do we set for the company for the next 5 years?

• What will the business be like in 1 year?

• What goals do we set for the coming year?

• What are the areas for improvement to be planned?

The provisional financing plan

The first phase of the forecast highlighted the strategic choices and areas for improvement of the project. The second consists in carrying out the forecast financing plan. It requires:

List, evaluate and plan the expenses related to the planned actions (investments, recruitment, studies, advice, purchases, rentals, etc.). We are not talking about current expenses here, but rather all expenses related to the implementation of a defined strategy),
Identify the financial resources available to the company, and the funding that will need to be mobilized to cover the needs.
Once all these elements have been identified, they will be grouped together in the financial part of the financial forecast.

Note : Most of the time, it is interesting to distinguish between medium and long term needs and funding. This makes it possible to avoid financing the short-term needs of the company such as the working capital requirement (WCR) through long-term financing (loan of more than one year, capital, etc.). Which is not recommended in most cases.
Evaluating the turnover of the financial forecast

Evaluating the turnover of the financial forecast Making a forecast requires evaluating as precisely as possible the turnover (or the change in turnover) generated by the strategic choices and the areas for improvement decided upon. This estimate must be made over a minimum period of 12 months while respecting the deadlines for implementing the strategy, the seasonality of the activity, the availability of goods and services marketed, etc.

To determine the amount of turnover to integrate into the forecast, it is possible to do so:

By cumulating a set of fine estimates. Unit turnover is estimated and added (by good, product, store, distribution network, geographical area, etc.),
By estimating market share gains. We calculate the market share that should be taken according to the commercial strategy and by multiplying it by the turnover generated by the activity sector (over the period and the studied sector) we obtain an estimate of the turnover. feasible deal.
In the end, it is important that the estimate that will be included in the forecast is as realistic and objective as possible in order to best reflect reality.

Note : When the forecast is made with professional software, a certain number of details can be taken into account (payment deadlines, margin rate, stock rotation, etc.).
Assessment of the costs of the forecast

Once the turnover is assessed, it is a question of determining exhaustively the amount of expenses that will be necessary for the activity of the company.

For this, the manager or the creator must analyze each expense item by differentiating fixed costs from variable costs as well as paying special attention to sensitive items such as personnel costs. Expenses should be assessed and dated in order to be able to measure their impact on cash flow.

To facilitate the adjustment work, it is recommended to have a precise wording which explains the method of calculation used. For example :

“Rent: € 1,200 / month (+ 2% / year)”,
“3% of the turnover of article XXX”,
“John’s salary fixed 2,000 euros / month + annual bonus 300 in December (+ 2% / year)”

A summary, classified table containing sub-totals can also be of great help. It is often interesting to approach a professional (chartered accountant) to carry out your forecast. On the one hand, it allows a “certified” forecast to be presented to potential investors, on the other hand it provides technical advantages:

Make sure that all the elements have been taken into account (charges, taxes, etc.). The precision and relevance of a forecast lies in large part in the completeness and accuracy of the elements that compose it. The use of suitable software limits inconsistencies and facilitates simulations.
To be able to compare the forecasts obtained with the sectoral averages of the company.
To better understand the consequences and implications of certain complex choices (legal status, taxation of the company and / or the manager, social protection of the manager and his family, salary costs, etc.)

Note : For a forecast to be effective, it is important that these revenue and expenditure forecasts are objective because a number of conclusions will result from the results obtained thanks to the forecast, for example:

The amount of share capital,
The validation of the business model,
The expected speed of development,
The cost price of goods and / or services,
the level of the break-even point,

The provisional balance

The provisional balance sheet is not the most studied summary document by creators. However, it allows you to get an idea of ​​the financial balance of the company and the state of its assets at the end of each period.

The provisional balance sheet is a document highly appreciated by financial partners because it also allows a better understanding of the company’s financing cycles and the production of financial indicators.

The provisional income statement

The provisional income statement makes it possible to study the profitability of the company for a specified period (generally a one-year exercise). It is essential to have validated your project with the provisional income statement before launching your project.

It can take the form of a classic table showing income on one side and expenses on the other, or in the form of a table of interim management balances. This second solution facilitates the analysis of the figures obtained.

Producing a provisional income statement without critically analyzing it is of little interest, because this analysis often allows the project to be refined by questioning certain data.

Analyzing the provisional income statement and the provisional balance sheet allows you to better understand the financial functioning of the company and to study a few indicators that we advise you to explore in more detail through our various articles:

• The margin rate,

• The cost of returns,

• Profitable level,

• Working capital (FR) and working capital requirement (WCR),

• Self-financing capacity (CAF),

The provisional cash flow plan

The provisional cash flow plan makes it possible to represent the evolution of cash flow over the coming months (and years). It is in the form of a table showing the monthly details of bank receipts and disbursements. This monthly and exhaustive classification of cash inflows and outflows makes it possible to monitor the evolution of the cash flow.

When the situation demands it, alerts can be set up and the accuracy of the monitoring can be improved by switching to weekly or even daily monitoring if necessary. It allows you to anticipate financing problems as well as manage excess cash.

Having cash allows the leader to act when necessary quickly and freely without having to seek the approval of his funders. In this sense, the provisional cash flow plan is an essential tool that allows the business manager to ensure that he has the means to act.
example provisional cash flow table 1
The forecast and the dashboard

The efficiency of the forecast is even more efficient when it is extended by a forecast budget and a monthly dashboard allowing budget monitoring. While the dashboard is necessary to manage a business, it is essential when the situation is tense (business creation, significant development of the activity, financial difficulties, etc.). It makes it possible to measure the performance of the company and to react very quickly.

The interest of the dashboard lies in its regular monitoring, but also in its ability to gather very general information because if we are talking about it here in a financial framework, it can perfectly integrate additional aspects (qualitative indicators, monitoring of human resources, logistics, etc.).

THE FORECAST: CONCLUSION

The forecast is an essential tool for preparing a development project or a business creation. It is both an element that brings together all the financial information and a tool that validates and refine the economic model.

Carrying out a forecast requires time, thought, information gathering, thought and a little accounting technique. If the stake of the project is important, it is often interesting to be supported to carry it out in order to make it a real decision support tool.

How to link the forecast financial statements to each other?

1. Develop the income statement based on the input variables

2. Carry forward the net profit to the balance sheet

3. Use net income and balance sheet changes to develop the cash flow statement

4. Use the asset amortization schedule to determine the amortization expense on the income statement, the balance of assets on the balance sheet and the amount to be added to net income on the statement of cash flows (non-fund items)

5. Use the debt amortization schedule to determine the interest on the income statement and the balance of debt on the balance sheet

6. Link the cash at the end of the cash flow statement to the cash on the balance sheet