Question

Kirsten, a friend of yours, plans to open 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 that the books were geared toward existing firms that have several years of historical financial statements on which to base their projections. If Kirsten asked for your advice about how to prepare forecasts for a completely new women’s fashion boutique, what would you tell her?

Answer 1

Answer:

Answer is explained in the explanation portion.

Explanation:

The new start-up holder can forecast the future or expected sales by finding out sales projections that could be search with the market routine prices for the products or the annual sales average for the start-ups of same kind.

After she has found the sales projection, she can estimate the expenses or costs related to the production and maintenance of the business.

Once, the costs are found she can deduct it from sales projections to find out expected income.

Other methods of forecasts won’t give her the answer because she is new in the industry with not annual financial statements of previous years.

Answer 2

Generally, a small-business owner follows four steps to develop the pro forma income statement:

Establish a sales projection

Set up a production schedule

Calculate your other expenses

Determine your expected profit

After using your sales projection as a starting point, you calculate the cost of goods sold if you are selling a physical product.

I would also suggest looking at trade organizations and asking other small business owners to help forecast costs.