The bank wants a forecast for my business! Where do I start?

If you are looking for a bank (or indeed anyone else, not just an investor) to support or advise on your business then you are going to need to give them information. Trading history is invaluable, and essential in many cases, but what most people will want to know is how the business will perform in the future. Short of having a crystal ball how can you show this and, most importantly, how can you convince others that your forecasts and projections are accurate – or at least fair and reasonable.

For an established business, trading history is the place to start - although not an indicator of future performance as we are constantly reminded with superannuation and other investment advice! However what you will get is:

• A framework or format for the forecast – this should be the same as your financial reporting for reasons of consistency and accountability
• A comparison which can lend credence to projections

No history? New business or business idea? The same principles apply but the starting point will change. Before you even look at an accounting system your business plan (or feasibility study) should set out your business as you wish to see it. This can then be converted into a chart of accounts (and/or budget) and then uploaded/imported/copied into an accounting system. Most systems will offer you a default chart of accounts but that will often be too general if you want to measure and control your business – if you just need to give something to your accountant to prepare the tax return then the default will usually be more than adequate. You really need to consider how you want to look at your business – professional advice is always a good idea but ultimately the decision is yours, most professionals will be able to put this vision into reality (or a model thereof).

Financials are what the bank most wants to see but the rest of your business plan needs to support this and demonstrate how the figures will be achieved (eg with a marketing plan). This is more important for a new business venture or a significant change over prior results.

Your forecasted projections are not just done once – forecasts should be regularly revisited and updated in light of current circumstances and performance and to take full advantage of future or potential changes, internal or external. The closer this is aligned to regular management reporting, the easier and more reliable will be the whole forecasting process.