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Looking Towards the Future: Financial Forecasting for Childcare Centres

Financial forecasting is critical to a business’ success. It enables business owners to minimise risks and make sound decisions in anticipation of unforeseen circumstances. By looking at internal and external historical data, businesses can make assumptions on the challenges or opportunities that they will need to prepare for.

Financial forecasting, however, is not absolute. Like with weather forecasting it takes skill and experience to create a realistic and fail-safe financial forecast.

To make forecasts that allow for accurate assumptions – and more importantly, help you future-proof your business – here are tips and a guide on starting financial forecasting for childcare centres.

Making Realistic Projections for Startups

Darren Craig, a Virgin Startup mentor and CEO of cybersecurity company RiskXchange, has advice for businesses, especially those in their first year.

  1. Look at expenses first.

Many companies look at their revenues first, but revenue is a lot harder to estimate as you have indefinite control over it.

  1. Forecast revenues in both a conservative and aggressive view.

Forecasting revenue with a conservative and aggressive view allows you to stay grounded and be ready for challenges while still being optimistic and motivated enough to inspire those around you – even potential investors.

  1. Check key ratios to ensure projections are sound.

Investors and lenders check the key financial ratios to evaluate your statements. You can do this too to check if your liquid assets can cover your liabilities and if your overhead costs are getting smaller as your revenue grows.

Getting Started

The best way to start with your financial forecast is through making a cash flow forecast.

A cash flow forecast is an estimate of your business’ inflow and outflow over a period of time.  Most businesses do forecasts that cover 12 months.

Examining your cash flow enables you to predict a cash  surplus or shortages. It can help you determine if you will struggle to settle your debts or taxes on their due dates and if you can make any major purchases or hire new staff.

Once your cash flow statement is done, create three assumptions for your expenses: regular, best possible and worst-case scenario. For each scenario, create a list of assumptions so that you can have context for changes in numbers.

From here, you can use your revenue projections to double-check your expenses. If you were to project enrolment increase by 30%, double-check if you have the facilities and manpower needed to keep track of accounts receivables and make allowance for payments that you won’t be able to collect.

By setting up your cash flow forecast similar to your cash flow statement, you can compare your assumptions with actual performance.  Additionally, by keeping track of operating expenses and total cost of revenues, you’re also preparing for tax season.

Let’s Take this to the Next Level

Ironing out your cash flow is just a dip into forecasting. Next comes looking into your income statement and balance sheet, then putting the three together. For advice on financial forecasting, get in touch with Early Learning Management.

We offer over 28 years of experience in offering financial modelling solutions to Australia’s childcare industry.

Call us on 07 5592 5800 or fill in our online form.

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