Beyond income statements, balance sheets and cash flow, there is a multitude of information that you should include in your financial projections for your business. Click here to learn what should and shouldn’t be included for a successful plan.
Do you really need to do financial projections?
You’re getting ready to launch a business. You may already have a business but need financing. You could be going for a bank loan or going after investors.
You may not need financing, but you may have a huge vision that requires a full-on business plan.
That means that you should run financial projections. They may seem intimidating, but they are absolutely necessary for the long-term health of your business.
How can you run projections that won’t pull your hair out?
Keep reading to learn how to create business projections for your business plan.
Why Are Financial Projections Important?
It’s understandable to want to avoid doing financial projections. However, if you want your business to function like a business and less like a hobby, then it’s in your best interest to write up financial projections for your business plan.
The reason why it’s so crucial is that it forces you to look at all of the possibilities for your business. You then can determine the best course of action for each possibility. That makes your company well-positioned for success.
It’s a well-known fact that most businesses close in the first five years. The biggest reason – lack of cash flow. Cash flow is the top reason why 82% of businesses fail.
Types of Financial Projections
When you’re writing your business plan, you may have seen that you need to add multiple types of financial projections in your plan.
That’s true, but you don’t need to go overboard. Investors and bankers need to make sure that your venture is set to be a profitable one.
These are the most common financial projections to include in your business plan.
Past Financial Data
This is pretty simple, as you’re gathering your financial statement for every year you’ve been in business. You’ll need your income sheets, balance sheets, and cash flow sheets from the last three years. Some investors will ask for five years.
If you’re a startup, then forecast what the company plans to achieve over the next 3-5 years. You’ll also want to put these statements together for each year the company has been in existence.
Sales Forecast
Sales is the engine that runs your business. A sales forecast can let you know how much you’ll be able to invest in other areas, such as research & development and marketing. You’ll also have an idea how much you should invest in employees.
Cash Flow
Cash flow statements are simple. They just show the money in and money out. You’ll outline your business expenses and your income. You can do this annually for a business plan, but this is something you should do every month.
Having these on paper will help you determine if you’re investing too much in one area and not enough in another.
Breakeven Projections
When is your venture going to turn a profit? That’s the question that the breakeven projections will answer. You’ll calculate your fixed costs, variable costs, and your projected sales.
Startup Projections
This sheet is for startups. You’re going to calculate all of your costs to start the business. That may include office equipment, real estate, or vehicle purchases.
Summarize Business Projections
Here’s where you’re going to want to take your information and turn it into graphs and charts. What you’re going to do in this section is take a look at the trends and communicate that to potential investors.
They’re not going to spend the time to read a dissertation, so presenting the data in easily digestible visuals will be important.
Once you’ve done all of this work, don’t let it go to waste. You’ll need to look at it regularly to see if your projections are on track.
If they are, keep doing what you’ve been doing. If they’re off, then where will you have to make adjustments to manage your cash flow.
You’ll also want to analyze where you went wrong in your projections. There may be political turmoil or an unexpected economic downturn that you could not predict. There also could be other factors such as being too optimistic about your sales numbers.
Business Plan Projection Tools and Resources
Now that you know what you need and how to do make business projections, what are the tools available to make the process easier?
Here’s a list of the top resources you’re going to want to check out to build your financial projections.
SBA/SCORE: The U.S. Small Business Administration is a great resource for learning about company projections. Through the SBA’s SCORE program, you can request a mentor to help you build your business plan and review your projections. The mentors are usually retirees who have a wealth of business experience to share with you.
Pro Business Plans: Pro Business Plans is an excellent resource because they do all of the work for you. That’s right, they do the research and write up your financial plan, which saves you a lot of time and energy from having to do it yourself. See more about their service.
Tim Berry’s Blog: Tim Berry is considered to be an expert in creating lean business plans. His blog will walk you through the process of creating a financial plan step by step.
At Your Business: We’d be remiss if we didn’t mention the plethora of resources we have on our site. You can find just about every business form or template imaginable. Take a look at our and .
LinkedIn Learning: LinkedIn purchased Lynda.com, a highly regarded online training website. Then, LinkedIn was swallowed up by Microsoft. It shouldn’t come as a surprise that they offer many courses on using Excel. Brushing up on these skills can lessen the time it takes to put your financials on a spreadsheet.
Financial Projections are Critical to Your Business
Many business owners overlook the importance of financial projections. The fact is, you can’t afford to overlook how important they are to the future health of your business.
Once you know what projections are the most important, and you know how to make proper projections, it can become an integral part of your strategic planning.
For more information on writing business plans and financial projections, check out our forms for .
