Business Plans For Dummies®, 2nd Edition

Chapter 11. Forecasting and Budgeting

In This Chapter

• Constructing your financial forecast

• Putting together a pro-forma profit and loss account

• Estimating a balance sheet

• Projecting your cash flow

• Exploring financial alternatives

• Preparing your company's budget

How many times have you sat around the table with your family (or maybe just your dog) and talked about the importance of putting the household on a budget? Everybody knows what a budget is, of course: It's a way of figuring out how much you're going to spend on essentials (the things that you need) and incidentals (all the frills). By its very nature, a budget is something that looks ahead, combining a forecast and a set of guidelines for spending money.

Note

As you probably know from experience, it's a lot easier to put together a budget if you have some basic financial information to work with. It's nice to know how much money's going to come in, for example, and when you expect it to arrive. It's also important to keep track of the expenses that absolutely have to be taken care of, such as the mortgage and the car payment. Only then can you begin to get a handle on what you have left over, which is called your working capital.

For your company, this kind of basic financial information resides in its financial statements. (For more information on financial statements, refer to Chapter 10.) These financial statements – profit and loss accounts, balance sheets, cash flow – are fairly straightforward, because they're based on how your ...