4 Pro Tips for Creating Accurate Financial Forecasts

Michael Sheridan, COO of Docstoc (http://www.docstoc.com/) reviews how to create accurate financial forecasts. Learn the ins and outs of business models and projections, so you can use this information to maximize revenue.

  1. Clearly identify the baseline for your business model
  2. Utilize existing models from other businesses in your industry
  3. Continually update & revise your plan based on feedback & advice
  4. Limit projections to 12-24 months at most

Creating a financial model requires four easy tips to get it done. Frist, clearly state your assumptions. What is the baseline when you’re creating a model so that investors, partners and potential employees know how you’re thinking about the business.

Second, make sure that you understand what the business models are out there. If there’s advertising business or restaurant businesses that you’re making money and it’s showing expenses the same way that many of these existing businesses are already doing it, don’t recreate the wheel.

Third, constantly re-evaluate from learning’s and this is really talking about as you’re going out and discussing the model, take the feedback from partners, investors and advisers as they’re discussing the financial model with you. Like any business plan section, the financial model is an evolving piece of your business plan.

And the fourth key tip is make sure not to go more than 12 or 24 months out in your projections. Really financial models become worthless after 2 years. There’s too much variability in what you’re trying to project. Focus on what you can know and the key pieces and benchmarks in getting to those revenue models in the next 12 to 24 months and you’ll have a successful financial model.

Certainly, the financial model is critical to a good business plan and I hope these four tips will help you get there.