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Forecasting tips from the experts
By Kyle
Parks • Bankrate.com
 Here
are some experts' tips for small-business owners who want to come
up with reliable financial projections:
- Make sure the projection has all the basics.
A good laundry list includes: gross profit, unusual occurring
items, provision for income taxes, income from continuing operations,
effect of discontinued operations, net income and significant
changes in financial position. It should also include a summary
of the assumptions made by the accountant or other preparer, and
a summary of the accounting policies that were used.
- In thinking about the future, try to include
all the possibilities. For instance, is there a chance the
company might go public? Will the management continue to be able
to devote all of its attention to this enterprise? What changes
are expected either among the competitors or in the market itself?
What effect might price changes of supplies have?
- Be as detailed as possible about your
growth plans. As an example of what can go wrong, Robert Penn,
a principal with the Houston accounting firm of Mann Frankfort
Stein & Lipp, talks about how he once did a projection
for a homebuilder who neglected to tell him that a project was
being developed in two phases. The sales in Phase II wouldn't
start until Phase I was 90 percent sold -- a key element in figuring
out how to project future sales.
- Don't be intimidated if a projection seems
hard to understand. In fact, Penn says, one trait of a good
forecast is its simplicity. If the terminology or methodology
is too hard to follow, ask to have the forecast put in simpler
terms or with more explanation. Preparers who can't or won't do
that may not be telling you everything about how they came to
their conclusions.
- A good projection should be heavily tailored
to your industry. For instance, for some companies revenues
are more important than market share, while in others the opposite
may be the case. Test the knowledge of your preparer. The right
one for you understands your industry -- and likely will take
notes. Problems can arise if the accountant uses a cookie-cutter
projection format and does a few minor tweaks to make it fit your
business.
- Check the reliability of the final numbers.
Do the assumptions seem in line with historical or industry trends,
and do they reflect the details that were discussed about the
business? The forecast should include some sort of summary of
at least the most wide-ranging assumptions.
Kyle Parks is a freelance
writer based in Florida
To comment on this story, please e-mail the
Bankrate.com
editors
-- Posted: April 6, 2000
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