Financial Modelling And Analysis
Let’s say you’re a small business owner who’s thinking of expanding your operations. You may be experiencing a period of high growth with acceleratedsales courtesy of a new product you’re selling. Before you decide to embark onthe crucial decision of purchasing new equipment, renting a new warehouse andmoving to new premises, you may want to undertake financial modelling andanalysis. What this essentially means is that you test out the scenario of expansion on your overall business operations using computer based techniquesthat provide an idea of the impact on your operations of any decision you take.
“What If” Analysis
Before even contemplating approaching a bank for funds to finance your proposed business expansion, it would be a good idea to test out your proposalusing simulated financial statements. A competent <ahref=”http://www.bookkeepingcentral.com.au”>bookkeeper </a> will be able touse computer spreadsheets such as Microsoft Excel or accounting software suchas MYOB – Mind Your Own Business – to perform these simulations to show youhow your borrowings will affect the expected returns of your business expansionventure.A “what if” analysis is a simulation of what the impact of your business decisionwill be on turnover or revenue, expenses and profits. Say, you wanted to borrowAUD$300,000 at a specified interest rate to purchase the necessary equipmentto expand your business. A “what if” analysis would show how much your totalexpenses will be with the interest payments, what additional revenue your extrabusiness opportunity will bring and how long it will take you to earn a return onyour investment in new premises and equipment. This sort of analysis is crucial if your proposed investment will be a heavy financial burden to bear.“What if” analysis can be done for any form of business decision. You could testout how adding a new line of products to your existing product offering will affectrevenue and expenses. You could see how well or badly your business will do if you bought new vehicles and started taking on projects in another town. Your outsourced accounting services can perform “what if” analysis to reveal how your financial statements will be affected if you wanted to use more expensivematerials or do a marketing campaign to increase sales. You can find out therelevant ratios, debtor levels, sales margins and projected cash flow connectedwith your proposal.The whole idea of a “what if” analysis is to reveal which areas of your businesswill be affected by your proposals without you having to learn the outcome thehard way. Financial modelling is a very powerful tool that will aid you in makingeffective decisions concerning the prosperity of your business.