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Tina, one of your friends, approached you and proposed a partnership in a new venture that she is planning to start—a fashion boutique that will sell women’s clothing and accessories. She told you that she leafed through several books on how to prepare forecasts and pro forma financial statements, but the books were geared toward existing firms that have several years of historical financial statements on which to base their projections.
In this assignment, you will review the accounting concepts and financial statements presented in this module to critically evaluate the challenges faced by your friend in her new business venture.
Respond to the following points:
Forecasting and Preparing Financial Statements
How to prepare forecasts for a new fashion boutique for women
According to Baker, (1999), “Sales forecasting involves predicting the amount people will purchase, given the product features and the conditions of the sale”. Sales forecasting, as one of the organizational operational tools, plays important role in helping organizations to plan, from budgeting to ordering the right products and ensuring adequate staffing depending on the season. To advice a friend on how to prepare forecasts for a new fashion boutique for women, I would recommend her to ensure proper understanding of the nature of her business. Depending on the business location, fashion boutique, may involve the purchasing of different products for different seasons for her customers. Knowing her targeted potential customers will help to make provision for the appropriate products that will satisfy their taste. Since it is a new business, it is very important to make provision for the process of creating of sales data to be used for the next sales forecast. She must research for sales information for similar businesses within the same locations’ and use the information for the initial sale forecasting.
Important financial statements to be in place for an initial assessment of the venture
Starting a new business can sometimes be challenging and confusing. Because of that some business owners may find it confusing to figure out the different business reports, the important reports and how to read some of these reports. There are three important reports that are required by small business to maintain as a way of monitoring its business activities and finances: the balance sheet, the income statement and the cash flow statement. Of all the reports the cash flow statement is one of the most important reports. Cash flow statement is important as it shows the business activities. As stated by Wicks, 2018 “A small business uses cash flow statements to report the inflow and outflow of the business. The inflow is the cash or revenues that come into the business through the sale of commodities; the outflow is the cash used in the daily operations of the business”. For a new business this report will set the pace for the initial report to be used by the business to monitor the level of progress it has made.
Michael J. Baker (Ed.), International Thompson Business Press, 1999, p. 278-290.
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