Once you start to run your own business, you’re more likely to be able to negotiate favorable terms with clients and convince a banker that you need a loan by using terms that everyone understands.
The information in your operating budget contains everything you will need to draw up the documents that are essential to the growth of your business. They are:
- Sales Forecast
- Cash Flow Projection
- Balance Sheet
- Income Statement, also known as Profit and Loss Statement
Sales Forecast
Trying to predict future sales is an inexact science at best, even for long-term entrepreneurs. For business owners who are just getting their feet wet, it can be downright maddening. How can you possibly predict your sales volume for the first month of business, let alone a year down the road, when so many variables will affect it, including your entrepreneurial inexperience?
The easiest—and most accurate—way to forecast future sales is with a simple chart that provides three different figures:
- Pie-in-the-sky figures, or the number that would be beyond your wildest dream, but still within the realm of the type of business you’re running given your location, your time commitment, and other variables
- Catastrophic figures, or the amount of sales you could expect to gross if a flood, earthquake, and fire occurred all in the same month
- Somewhere in between, which may be the number you end up with when you add up the two previous figures and divide by two
Keep in mind that as the months fly by and you gain more experience running your business, you’ll also start to learn what figures are realistic to expect. But it’s fun to dream, and to have a goal. Think about the pie-in-the-sky figure. What would you have to do differently in your business in order to even come close to this number? Ask yourself this question regularly after you’ve been running your business for a while, and one day you may just reach those lofty heights.
