Forecasts With Profit First

Do I really need a forecast if I use Profit First? Recently a reader reached out to me for help preparing a forecast for her business. I was impressed! Why? Because that demonstrates a very powerful mindset.  She was investing the time and energy to be intentional about the profitability of her business.

Forecasts Not Budgets

I discuss in Profit First for Creatives why budgets don’t work for business owners, and why they should use forecasts instead. To recap, budgets are tools for control for larger businesses. In our business, we have only budgets for specific departments, but not for the whole business.  The budget allows us to delegate spending authority to team members. But when you’re the owner, you have the power to override a budget, which is why it is not a tool for you to use.

A forecast, in contrast, allows you to plan financial success of your business.  I go into detail in the book on how to do a forecast, and I have added a free template on our resources page. There is also a video walk through for you to reference. Using a forecast puts you in a position to hold yourself accountable.

Once you have a forecast for the next 12 months, you can use Profit First to determine whether you are on track or off. Simply look at your forecast projects of profit. At the end of the quarter, how does the balance in your profit account stack up? If it is less than your projection, you can dig in and find out where your plan went off track.

My Numbers Don’t Match

For some businesses this as simple as revenue being lower.  Again, you can easily do this with Profit First. Look at the amount that went into the deposit account for the quarter. Did it match your forecast? If not, why? I actually think it is best to be able to describe any differences, good or bad.  Even if your revenue was higher than forecast, you need to know why? Did something work better than expected?

For other businesses, you may have to dig deeper into the operating expenses account to see where your actual expenses were different than the projection. In any case, using a forecast assures that you are taking your profit seriously.

You can do a forecast without implementing Profit First, although using Profit First AND a forecast is best practice. The Profit First process gives you the tools you need to ensure that you can make your projection. Without implementing Profit First, making your forecast numbers just becomes that much harder.

Download the template today and get started!