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# Sales forecast limitations.

Extracts from this document...

Introduction

Financial Plan Sales forecast for the year ended 31 December 2002 January �38,417 * February �38,417 * March �42,686 * April �42,686 * May �42,686 * June �469,55 * July �46,955 * August �46,955 * September �42,686 * October �42,686 * November �42,686 * December �44,820 �518,635 Sales forecast limitations Businesses are always trying to predict the future. This helps with planning and beating competitors. One simple way of predicting the future is to assume that it will be just like the past. Another way is forecast the sales figures using primary research. For the immediate future this may be very realistic. However such stability and predictability are rare. The values of data plotted over time, called time-series analysis, can vary because of seasonal influences and also because of genuinely random factors, which can never be predicted. Cash Flow Forecast Cash flow is a movement of cash into and out of a business. A cash flow forecast sets out the anticipated cash inflows and cash outflows over the coming months. Each column shows money coming into and out of the business in that month. The forecast then shows the effect of each month's cash flows upon the firm's cash balance/total. ...read more.

Middle

Net Profit 59,191 . 5 Second Year of trading: Forecasted Trading and profit and Loss a/c for the ended 31 December 2005 Revenue 570,503 Opening stock - Net purchases 171,154 Stock available 171,154 Less closing stock (4,437) Cost of goods sold (166,717) Gross Profit 403,786 Less expenses: Wastage of material. 9,684 Depreciation on property (5%) 17,500 Rent 90,000 Waitress wages 39,420 Accountant 4,164 Chefs and Assistants 55,188 Loan interest 15,000 Electricity 5,040 Advertising 3,800 Casual labour 13,140 Gas 300 Heating 584 Insurance 2,400 General expenses 3,600 Barmen 24,091.2 Total expenses (283,911.2) Net Profit 119, 874. 8 Balance Sheet Extracts of: First Year of trading: Forecasted Balance Sheet for the year ended 31 Dec 2004 Fixed assets Capital Fixtures & fittings 350,000 - depreciation (17,500) Net profit 59,191.5 332,500 Long-term liabilities Loan 150,000 Current Assets Stock 4,034 Current liabilities Bank 133,782.5 Creditors 17,064 Property(outstanding) 233,334 Second year of trading: Forecasted Balance Sheet for the year ended 31 Dec 2005 Fixed assets Capital Fixtures & fittings 350,000 - depreciation (17,500) Net profit 119,874.8 332,500 Long-term liabilities Loan 150,000 Current Assets Stock 4,437 Current liabilities Bank 168,828.3 Creditors 18,770 Property (outstanding) 116,667 Ratio Analysis The function of accounting is to provide information to stakeholders on how a business has performed over a given period. ...read more.

Conclusion

Although it is a rudimentary technique, break-even analysis can cope with changing circumstances. We have seen that the technique can allow for changing revenues and costs and gives a valuable rule-of-thumb guide to potential profitability. However, break-even does have some drawbacks. It pays little attention to the realities of the marketplace. A major flaw is that it assumes all output is sold. This may well be untrue and, if so, would result in an inaccurate break-even estimates. If a firm sells less than it produces it incurs costs without earning the corresponding revenue. This will substantially reduce profits. In times of recession, a firm may have difficulty in selling all that it produces. Although break-even can cope with changes in prices and costs, in the real world such factors change regularly making it difficult to as a forecasting technique. Changes in tastes and fashions, exchange rates and technology are all examples of factors, which could invalidate break-even forecasts. The model assumes that costs increase constantly and that firms do not benefit from economies of scale. Similarly, break-even analysis assumes the firm sells all its output at a single price. In reality firms frequently offer discount for bulk purchases. Finally, break-even analysis is only as good as the data on which it is based: poor quality data can result in inaccurate conclusions being drawn. ...read more.

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