To effectively manage working capital and cash flow, a company must have a reasonable idea of how much revenue it plans to receive over a given time period and what its necessary expenses will be over that same period of time.
Financial forecasts are commonly reviewed and revised annually as new information regarding assets and costs becomes available.
The new data enables an individual or business to make more accurate financial projections.
It is easier for established companies that generate steady revenues to make accurate financial forecasts than it is for new businesses or companies whose revenue is subject to significant seasonal or cyclical fluctuations.
COGS for a bookstore include what the storeowner pays to buy books.
COGS for Garrett are what he paid for the bicycles, accessories, and clothing he sold during the month.So if your chart of accounts divides sales by product or service groups, keep those groups intact in your sales forecast.If bookkeeping tracks sales by product, don’t forecast your sales by channel instead.I was a vice president of a market research firm for several years, doing expensive forecasts, and I saw many times that there’s nothing better than the educated guess of somebody who knows the business well.All those sophisticated techniques depend on data from the past.If your categories in the projections don’t match the accounting output, you’re not going to be able to track plan vs. Normally your sales forecast will group sales into a few manageable rows of sales and show projected units, prices, and sales monthly for the next 12 months and annually for the second and third years in the future.Here’s a quick example from the bicycle retailer named Garrett I’ve used in other examples (with columns for April-November hidden on purpose, to make viewing easier): A normal sales forecast includes units, price per unit, sales, direct cost per unit, and direct costs.Direct costs are also called COGS, cost of goods sold, and unit costs. That stands for Cost of Goods Sold, and applies to businesses that sell goods.COGS for a manufacturer include raw materials and labor costs to manufacture or assemble finished goods.A financial forecast is an estimation, or projection, of likely future income or revenue and expenses, while a financial plan lays out the necessary steps to generate future income and cover future expenses.Alternatively, a financial plan can be looked at as what an individual or company plans to do with income or revenue received.