Sep 1, 2023 | Financial Acceleration

Zenagos Expert Finance Tip: Make a Monthly Forecast

Q. Dear Zenagos,
I launched a car detailing business without really thinking about it, and it has really taken off. But now I’m having trouble keeping track of my income and costs. I never took accounting or anything. What should I do?
–Lilly

If you need to get a handle on your business finances, make a monthly forecast. The first time you do it, it may take an hour, but after a few months, you’ll be able to do it in just a few minutes. Tracking your finances will help you to understand your business and will give you the information you need to make better decisions.

Choose a Tracking Method
As long as you are tracking your income and expenses, it doesn’t matter how you do it. You can use a paper ledger, or you can use a computer spreadsheet like Google Sheets or Microsoft Excel. Or, you can use one of many accounting apps for small business, such as Wave, Zoho, Quickbooks, Xero, or Freshbooks.

Decide Who Will Do the Accounting
You may do the accounting yourself, or your spouse or business partner may handle it, or you may hire a bookkeeper to keep your financial records up-to-date. Regardless of who does the accounting, you should make your own monthly forecast. Make a monthly appointment with yourself that is absolutely sacrosanct – do not break your appointment with yourself for any reason. If you don’t monitor your own books, you will not truly understand what is going on with your business.

Create Your First Forecast
If you want a simple forecast template in Google Sheets, send Zenagos an email at info@zenagos.com, and we will send you a link to copy our template. Or, make your own template in Google Sheets or Microsoft Excel. Make columns for the previous month and then 12 more months, so you always have a full year of forecasted financials.

Your rows should include:

Revenue
Check your records, and write down the revenue from your last full month of business. In our template, we subtract transaction fees like credit card fees from revenue to create “Net Revenue,” but your accounting expert may tell you to put credit card fees under costs.

Direct Costs
In Direct Costs (often called Cost of Goods Sold), you want to record any costs that go directly creating your offering. For example, if you sell chairs, then these costs might include wood, nails, screws, glue, varnish, etc. A common cost in this category is shipping, when you ship your goods to your customers.

Fixed Costs
You need to add all of your costs, so you can compare your forecast to your financial records. They need to line up exactly. If you don’t want to include every tiny cost, then create a category called Other Operating or Miscellaneous, so you can track only the major costs.

Since taxes are usually done at the end of the year, we don’t generally include them in the forecast, but if you want to include your estimated taxes or any interest on loans, add those costs into your forecast.

An image of a Google Sheet with a sample financial forecast.

This is an image of a Google Sheet with a sample financial forecast.

Add To Your Forecast Each Month
Once you have closed your books for the month, do your next forecast.

Compare Your Actuals to Your Estimate
Compare your actuals for the month you just closed to the forecast you made last month. How close were you? Learn from the surprises, and try for a better estimate for next month.

Enter Your Actuals
Replace your estimates with your actuals. At Zenagos, we put actuals in a blue font and future numbers in a black font, so we change the font for the recently closed month to blue and then replace all the estimates with the actuals. As you enter the actuals for a given row, tweak your guesses for future months in that row. If you have new information (such as a signed contract for future work), change your future months to include that. If your expenses were much higher than your forecast, increase the expense estimates for your future months to make your forecast more conservative.

Add a Month to the End of Your Forecast
You want your estimates to cover a full year, so if you just closed March this year, add March for the next year to the end of your forecast. Do this each month, continually rolling your forecast forward.

Doing a monthly forecast doesn’t take a lot of time, but it does take discipline. Understanding your financial position is an important duty for a small business owner. Take it seriously, and keep your commitment to yourself to do it once a month. You’ll be glad you did!

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