Jun 2021 Learn How to Plan the Profit You Want to Earn in the 2022 Financial Year
It’s been a busier year than expected, and the financial year is coming to a close. So now is a good time to start planning profits for 2022.
This plan is called a “Financial Forecast”, and it’s done by looking at your 2021 P&L and predicting the next 12 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 2 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 can also be predicted based on last year’s percentage in relation to sales.
So perhaps a goal for 2022 is to reduce materials and wages in relation to sales, therefore making more profit.
SO 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 teams Wages going forward.
In your 2021 P&L, other major expenses like Materials and Subbies can have a percentage calculated that’s 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 MACHINERY?
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 machinery.
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 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.
If you need help, just email me!