OUR THOUGHTS ON:

The Importance of Accurate Business Modeling

Business Advisors

By Marisa Gentile

Being able to accurately develop projections and financial forecasts is a critical financial planning skill for business owners. Purposes of developing financial forecasts include: assessing future financial needs for ongoing business operations and possible expansion, planning for production and hiring, or planning workforce reduction requirements.

The time period typically considered in developing financial forecasts is three to five years. Ensuring that projections are both realistic and attainable is an important key to developing accurate forecasts. Growth rates utilized should be sustainable, and forecasts should be based upon supportable evidence such as analysis of historical financial results. It is also important to utilize industry-supportable estimates and consider the state of the economy in which the business operates. It is imperative to include accurate cost-of-sales expenses and general and administrative expenses. When considering projected sales growth, business owners should also consider what capital expenditures will be necessary for expansion and how those capital assets will be financed.

Budgeting is another area of financial planning that should be integrated with the development of an accurate business model. The budgeting process considers both financial and operating targets and provides support for the overall operating strategy. Integrating budgeting and forecasting allows business owners to revise assumptions based upon actual results. Changes to the forecasts and budgets can be made regarding the operating strategy, capital expenditures and workforce compensation.

For assistance with business modeling, please contact Joel Rosenthal, Shareholder, at (412) 697-5387.

 

© 2012 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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