by Nick Robinson | Mar 21, 2013 | Personal Tax
Financial projections are simply a matter of making a good estimate of what products or services you are going to sell, what it will cost and what your ongoing expenses are going to be. Often future planning is thwarted because of the failure to produce sound financial data.
Tax law allows businesses to establish so-called fiscal years instead of calendar years for tax purposes. For example, your fiscal year might go from February through January, or October through September. Year is always the year it ends, not the year it starts.
Sales & Credit
Understanding the difference between sales on credit and accounts receivable is extremely important when creating financial projections. When your business sells anything to another business, you usually have to deliver an invoice and wait to get paid. That’s called sales on credit. When you make the sale and deliver the invoice, the invoice amount increases sales and accounts receivable.
Separate costs from expenses
Costs are normally the cost of sales, also called cost of goods sold and direct costs. Costs are the money you spend on whatever you’re selling, like what a bookstore pays to buy books. Expenses are regular running expenses like rent and payroll. Expenses are incurred regardless of whether or not you have made had any sales.
Assets & expenses
It is better to class any money spent on development as expenses. This in turn lowers your tax bill and makes your balance sheet look better, because of absence of ‘questionable assets.