How to forecast your profit and loss


Why would you want to forecast your P&L? 

Having a good idea of what your cashflow is going to be like for the next 12 months will be hugely helpful in making decisions for your business. You’ll know if you need to raise any finance, and if you can afford to make any substantial purchases, or hire additional staff. 

So, let’s look at how you would carry out the forecast…

Firstly, don’t worry about doing this to coincide with your financial year – you can just do 12 months from now. If you’d rather see what it would look by financial year, then do the forecast to the end of your current year, and then a further 12 months.

Start by looking at your accounts for the previous two years. This will help you build up a picture of trading patterns:

·     When larger costs occur, such as insurance and annual licence fees

·     Seasonal sales patterns – are your sales consistent during the year, or are there peaks and troughs?

·     What happens when you’re delivering larger projects rather than lower value ones

 Then you need to evaluate your costs (finance people like to call those expenses!), to see which are directly connected to sales – known as cost of sales. Those are likely to be the cost for delivering a project, like sub contractors, plus stock and sales commission. You should look at these as a percentage of your sales figures. That way, you get a clear picture of what your figures will look like if sales fluctuate.

Then you need to move on and look at overheads. Start with the fixed costs – that’s the figures that will stay the same regardless of sales – rent, IT, utilities, insurance and payroll, are all good examples. 

The last piece of the jigsaw are variable costs – these will alter according to the needs of the business – marketing, seasonal staff changes, overdraft interest, that kind of thing.

Put all of these figures into a spreadsheet and you will get a forecast profit and loss for the next 12 months. It’s up to you whether you choose to put any large costs that you pay annually into the month they occur, or spread the cost across the 12 months – the net result will be the same for year end.

Before you sit back and smile, you will need to add in one more line… And that’s corporation tax, if you trade as a limited company. You should assume 19% of your profit, for the purposes of calculation.

If you find this all rather daunting, then please give us a buzz on 01420 362 363, we’d be happy to help.