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The creation of financial forecasts is critical for fast food corporations' strategic strategies. This tradition of designing a strategic strategy and a financial plan is often undertaken for start-up businesses when they hit the industry in order to be competitive in the market (Ng & Dunford 30). This article would concentrate on financial forecasts in the fast-food market, which is one of the most dynamic in the United States. The use of financial projections aid in enhancing the organization’s persuasive power when dealing with the investors and lenders in that the business will be profitable by getting good returns on their investment. Financial projections enable the owner of the business to plan as well as the budget for the firm. Through the comparison of the actual financial statements with the financial projections of the business, the organization can see if the business is falling short of the projections or surpassing them. In this case, if the projections are falling short, it is crucial for the organization to make some changes through cutting costs, raising prices or rethinking the model of the business. On the other hand, if the income of the business is more than the projections, then there is need of hiring employees, expanding the business or seeking finances sooner than the expectations (Glazer 32).
Components of the Financial Plan
When creating the financial projections, it should at least be for three years or so since they focus on the future of the business. Most of the financial projections are done by using the following; a sales forecast, expense budget,
A sales forecast is a projection of sales for at least three years which can be estimated quarterly each year. Regarding the projecting the number of customers to expect, the number of units to be sold, cost of goods sold as well as the price of the products. The set-up of the sales can be done in various sections for lines of sales that are different and columns that represent every month during the first year and for the second year it can be on a quarterly or monthly basis.
A company or organization that wants to enter into the fast food industry should have an expense budget for it needs to know how much it is going to cost in making the sales forecast. This includes both the fixed and variable costs. The fixed costs include rent while variable costs are things like the advertising expenses. This is done by getting the general estimate of the items in the business and not the detailed breakdown of every single item. The three main documents that are used in projecting the finances include income statements, cash flow statement and balance sheet (Oberholzer 1467).
This document indicates the amount of money that the business is supposed to generate through the projection of expenses and income such as capital, sales, the cost of goods and the general expenses. For the startup businesses in the fast food industry, the organization can create a monthly income statement. Maybe quarterly statements in the second year and the following years just stick to the annual income statement.
Cash Flow Statement
These documents are very essential at projecting the finances since they give details on how money will flow into the business and out of business in that the inflows and the outflows (Law & Robson 15). The projected cash flows are compared with the actual statements of the business to see if the business has made profits or losses.
The balance sheet indicates the finances of the overall business which includes the liabilities, assets and the equity of the organization. In this case, the annual balance sheet is created by the business so as to estimate the financial projections. The balance sheet is used in the projection of the worth of the organization at the end of a given fiscal year.
According to Chang another aspect that is crucial when projecting the finances in a fast food business is the breakeven analysis where the expenses tend to are expected to match the service or sales volume (p.23). The use of instance a three-year period to make projections enables the organization to carry out the analysis. In this case, if the business is viable, in a given period the overall revenue of the business tends to be more than the expenses which are inclusive of the interest. This is a vital aspect since it enables the potential investors to have an idea that they are investing a business that is growing at a high rate and has an exit strategy.
How to Enhance the Financial Projections That Are Stated In the Business Plan
Chang argues that most of the businesses tend to forget the business plan after they start their businesses which are not right since it can be used as a tool that can be used to manage the company (p.22). The financial statements can be used by developing a study of the relationship through the comparison of items in the financial statements on a timely basis and can also compare to the performance of other businesses. The issue of comparison can be achieved by using the ratio analysis where the business finds out the ratios that prevail in the fast food industry such as profitability analysis, liquidity analysis, and debts and compare the ratios the those of the organization.
When the business wants to maybe get a loan the business plan can be used to request for the loan and the financial history of the business can be used being part of the financial section. Some of the banks tend to request for the addition documents to compliment the financial situation of the organization when seeking for the loan. The details needed are things such as the financial statements of the owner as well as the listing of the assets and liabilities. The financial section in the business plan helps in making the process of acquiring the loan easier (Glazer 34). Moreover, it is worth noting that investors and banks cannot provide money for the organizations that do not provide a reasonable and clear business plan especially when it comes to the financial projections. It aids the management in focusing on the growth of the company as well as coming up with ideas on how such growth can be achieved.
Law and Robson observe that the short term and medium term projections are essential (p.15). This can be regarding one year that is broken down monthly and three-year projection that can be broken down yearly. When the business wants to project growth, it crucial to consider the state in which the market is at. This is because; the fast food industry is very competitive and has many players or organizations in the industry. Therefore, it is vital to keep track of the raw materials and the labor costs that are incurred in the market as well as the need for a foreseeable additional funding. This aids in preparing the organization when managing its finances especially since it may need to outsource the raw materials.
When projecting the finances, it is also vital to account for the start-up fees that are related to the permits, licenses and various types of equipment more so the fixed equipment which should be included in the short-term projections (Oberholzer 1467). The assumptions made when coming up with the financial projections in the business plan need to be clear and reasonable. This applies when estimating the growth of the revenue, the growth of the administrative and raw material costs as well as the effectiveness of the organization when collecting the accounts receivable. The issue of being realistic applies even when the organization wants to recruit the investors. The financial projections should comprise of the money that the organization plan to borrow as well as the loan repayment interests.
In conclusion, if the organization in the fast food industry wants to convince the lenders and investors in committing to the objectives and vision of the company, a reasonable business plan is required more so on how the financial projections are formed. They should be displayed in such a way that the potential of the company is demonstrated. The financial section convinces the investors that the organization has estimated its costs in a reliable manner, as well as the revenue and that plausible assets, are offered. As discussed above, the income statements, financial statements, and the balance sheet are the essential documents that are used in projecting the finances of the organization. It is crucial to monitor how the business is performing after coming up with financial projections in the business plan. The monitoring process aids the business in knowing about the cash flow of the company. As a result of the high rate of competition that is experienced in the fast food industry, proper financial projections is always crucial since it aids the organization in gaining a competitive advantage.
Chang, Milton. "Entrepreneurship Your Business Plan". IEEE Engineering Management Review 44.1 (2016): 21-23. Web.
Glazer, Russell T. "A Simplified Method For Long-Term Financial Projections". Business Valuation Review 30.1 (2011): 31-35. Web.
Law, Mark D., and Gary Robson. "A Case Study For Accounting Information Systems A Business Continuity Plan For Protecting Critical Financial Information In The NYC Financial Services Industry". Review of Business Information Systems (RBIS) 18.1 (2014): 15. Web.
Ng, S. W., and E. Dunford. "Complexities And Opportunities In Monitoring And Evaluating US And Global Changes By The Food Industry". Obesity Reviews 14 (2013): 29-41. Web.
Oberholzer, Merwe. "A Non-Parametric Comparison Among Firms Income Statement-Based And Balance Sheet-Based Performance". International Business & Economics Research Journal (IBER) 12.11 (2013): 1467. Web.
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