Jacksonville CPA | Solid Relationships
Hello everyone, welcome to this segment. This is brandon mcelroy. I am the president of neighbor a Jacksonville based tax accounting and consulting firm. We’re talking today about forecasting. So, um, you know, just Kinda have to retrack you have budgeting and forecasting and Greg crabtree says to skip the budget and forecast. Okay, so talking about many people think that you have to get very detailed on these forecasts and look at every single line item and try to plan that out, but you don’t really need to get that detailed so you just need to answer questions like, what’s my revenue, what’s my cost of goods sold? You know, what’s my labor, what am I operating expenses? When you get the data at that level, you’ll see that the numbers don’t move around as much as you thought they would. You understand that the economic engine of your business is pretax profit. Okay? I know we’ve talked about cash being critical, the critical number for your first year in business. You know, you want to know what the cash balances, so you’ll never run out. Okay? Once you’re fully capitalized, then cash, it’s not your critical number. Okay, you need to start thinking more along the lines of how profitable you can be and if you can set a record, okay?
This is when you start to look at your metrics. Don’t look at the metrics of other other people or the businesses. Set your own metrics and break your own records. Okay? Keep. Keep improving until you know. Keep just stretching until you find the edges to improve your performance. You know, just give you a word of caution. There’s a lot of Jacksonville CPAS who may sell a very expensive and very detail oriented, a cash flow projection systems that allow you to create huge spreadsheets. Don’t buy or create a system that requires far more effort to update then the value you get from it. If you spend all of your effort updating the system, you’ll spend very little time looking at the data, okay? If, if it complex system is not talking to you, don’t pay for it. Okay, so symptom Mineva and let us help you out. Okay? Sometimes you know, you may need to use a complex model in certain situations, but you know, if you’re not getting any benefit from it, then stop using it. Okay? Let’s talk about the basics of a simple forecast model you, you already know you have to keep forecasting simple. So you try to understand one month if you can understand how the data from a P and l statement turns into cash and you can start expanding it into multiple months.
Okay? So you want to have a few columns in your forecast. Okay? If you have a Jacksonville CPA, I’m didn’t come to Mineva. Alright, so you’re gonna want to have input fields to drive the data for your forecast. You want to have the basic elements that we’ve talked about. Revenue, cost of goods sold, labor operating expenses. So the two most common operating expenses are salaries, marketing facilities, payroll taxes, benefits, result of all that activity is your net operating income. Okay? In addition to these amounts, you want to see two critical percentages, gross profit and net operating income or pretext profit. You want to see that as percentage of revenue, okay? You can lower your gross profit, potentially improve your pretax profit by making changes such as sales volume or employee salaries, but pretax profits as a percentage of revenue is most important. Number so, and in this example, there’s $8,000 in net operating income, but that isn’t cash, okay? You have to make some essential adjustments before you get to your cash number and the first thing you need to look at as accounts receivable. If you get paid immediately upon performance, then accounts receivable is irrelevant, but vast majority of businesses have a accounts receivable.
Okay? So if you have beginning accounts receivable of 85,000 and it, it ends up with a balance of $100,000, it means that your receivables went up, okay? So have to subtract the balance from the ending balance to get the net change or the cash impact, but she’s going to be $15,000. It’s one of those times where growth actually use cash. All right? You need to understand that when it comes to cashflow, arise in accounts receivable, uses cash because it’s receivable and you don’t have it available yet. Okay? So if you have a Jacksonville CPA that’s not talking you through these things and give them an eva call, okay? And almost look at payables, the, you know, if the beginning balances is 30,000 and the ending balance is 25,000. So your payables went down means you had to use cash to lower your payables. So this results in a change of $5,000 cash, he used a, another big component of a forecast is debt. You started the month with a debt of $50,000 and ended the month with the data of $65,000. So He created a $15,000 of cash through debt sources. Everybody forgets to look at holders equity. There are a few things that can happen here. You can either put money in or you can take money out, subtracted or added.
Okay? So if you take out $10,000 as a distribution. So the total changing cash is at a loss.
So sometimes there are other changes, but we won’t go over them in this example. So you need to find out what your total net change in cash. Yes. Okay. You look at the cashflow forecast, you can see that the beginning number for each of the adjustments items is the same as the previous month’s number. So you have to do is forecast the next month’s change. You cashed estimate will happen in that month. Okay? So if you’re Jacksonville CPA is not going through these things with you then give them an they have a call. Okay? So if you know that your accounts receivable is too high, you have a target to shoot for. Jacksonville CPA Okay? Need to hope that that goes. You can’t just hope that that goes down. Hope is not a strategy. You have to start making tougher negotiations if you stopped being a too nice. A lot of the time, you know if, if you think you’re in a relationship in your being extra nice. We’ve talked about this. Look at a picture of your, your wife and children sitting at a table with no food on it and decide how nice you really want to be. Okay. It’s business. It’s important to be nice. It’s also crucial to develop solid relationships. Who with customers who will pay you? So, uh, this is branded mcelroy. If you have a Jacksonville CPA that it’s not getting the results. Give us a call at Mineva.