Starting a limited liability company (LLC) or other type of business involves a lot of planning. Before you officially kick off your company, you need to have a solid idea about the revenue and sales you can expect. How else can you possibly hope to assess the viability of your business plan and its associated costs?
But this forward-thinking approach doesn’t just begin and end with your initial launch. To keep your business successful, you must continue to create financial projections to predict your business growth and revenue. With these predictions, you will be able to plan for the immediate and long-term future of your company. And over time, their accuracy should only improve.
Here are a few tips to keep in mind as you build your very first set of business projections.
Master the Art of “Guesstimating” to Predict Growth
When you first launch your company, you don’t have any context for the reality of your business performance. So it’s imperative that you do everything you can to understand the surrounding market, including:
- Your competition’s growth, successes and failures
- How your business model or idea is different
- How your revenue may fluctuate throughout the year
Revenue Is More Than It Seems
Business owners tend to use terms like “sales” and “revenue” interchangeably. But if you hope to create an accurate set of financial projections, you have to look beyond. Estimated sales make a significant portion of your revenue, to be sure.
However, don’t forget other sources of income you might have in the pipeline. If you are holding any investments or property, these can be a contributing factor to your total revenue as well. If you don’t take care in crafting a detailed financial projection up front, you’ll pay for it later.
Don’t Forget Wages (Including Yours)
It’s easy to underestimate how much your outgoing wages will affect your bottom line, especially in the early days of your business. Even if you dedicate a minimum salary for yourself, you should include your wages with those of your business partners and employees.
Moreover, you’ll want to account for any benefits — such as insurance plans or a retirement plan — you’ll be offering to your workers. In recent years, benefits have accounted for about 32 percent of employee costs, according to the Bureau of Labor Statistics.
Determine Your Profitability
Without first establishing your company’s profitability, you’ll have a more difficult time nailing down solid financial projections. Thankfully, your profitability isn’t hard to determine if you know what steps to follow:
- Identify your overhead: Round up any fixed costs (e.g., rent, utilities, insurance, payroll company); variable costs (e.g., marketing, travel, credit card fees, seasonal help); and one-time expenses (e.g., equipment, furniture, company vehicles).
- Acknowledge any variable factors: Just because you compiled a list of all your costs doesn’t mean it’s set in stone. Your business is a living, breathing organism. Change comes with the territory. So allow for price changes or unexpected expenses.
- Settle on your expectations: Early in your business’s lifecycle, your anticipated sales, revenues and taxes might be significantly off. But to calculate your profitability, you still need at least some idea to guide your company’s vision forward.
- Crunch those numbers: With your overhead and anticipated sales, you can determine what your potential profit is. Simply subtract your expenses from your expected sales to arrive at profitability. Just be sure to identify a range of estimates to prepare for anything.
Devise a Long-Term Business Growth Plan
To keep your company on a steady growth track, you first have to sketch out where you’re going. As you sharpen your understanding of your new business, you might choose to create financial projections a quarter or even a month at a time. But once you’re able, you’ll want to begin plotting out your business growth years in advance.
One key decision you’ll have to make is how much of your profit you’re willing to reinvest in fueling this long-term growth strategy. Making money, as they say, takes money. So know your limits and what steps you need to take to ensure your company reaches that next level without sacrificing all the progress you’ve made.
As you’re setting up the fundamental elements of your new company, you should ensure you have a reliable business checking account. Bank of America’s Business Advantage offers a $450 bonus to new account holders, as well as the same tailored solutions and personalized small business support we value at Incfile. For information on how Bank of America can help you launch your business in the best way possible, visit their website.
Jackie Lam
