Upon completing the first three parts of the pre-feasibility study, the entrepreneur should now be able to proceed in constructing his or her enterprise’s financial forecasts for the business. The financial forecasts refer to the monetary transactions that the business is expected to engage in. Ultimately, the end result of the financial forecasts will indicate the feasibility of the enterprise.
Financial forecasting calls for the creation of the four critical financial statements: namely, (1) income statement; (2) balance sheet; (3) cash flow statement; and (4) funds flow statement. The marketing strategy and action program should translate into revenue or sales forecasts. The operations strategy and the production or service delivery program should translate into forecasts of costs of goods produced. The rest of the Enterprise Delivery System should translate into forecasts of operating and non-operating expenses. Together, they comprise the income statement forecasts. The resources mobilized and held by the enterprise are translated into forecasts of the balance sheet (which show the investments in the form of assets and their corresponding financing in the form of liabilities). The flow of resources should be translated into funds and cash flow statements. For a better understanding, this discussion will concentrate on preparing a simple income statement and balance sheet.