While working on financial forecasts is not a glamorous task, it is vital for every business. If you’re making at least $10 million in revenue, you need to chart a course for scalability and growth. Maintaining realistic financial forecasts is thus critical to attracting investors and cementing long-term strategy.
In this article, 4951 Studios walks you through the essential guide on financial projections – why they’re crucial, how to create them, and what they include. Let’s get into it.
Why Are Financial Projections Critical?
Financial forecasting is a must for every business because it offers tangible steps to get to where you want to go. You’ll have insight into resource requirements and milestones needed to achieve your goals. Working within a concrete budget also helps keep expenses down where possible and plan for unforeseen events down the line. Another great benefit is that you’ll have a set point by which to measure how you’re progressing against your plan!
Projection Creation Process
The financial section of your business plan is most telling. It involves revenues, profits, created value, and more. Here is an outline of the forecast creation process:
- Revenue growth: Begin by identifying the factors that most contribute to your overall revenue. This can be gleaned from financial data or by performing relative analyses with similar companies. Examples of revenue growth factors could be innovation, technology, and more.
- Rationale: One of the aims of the process is to take the guesswork out of projections. Use reliable sources and accurate data to create a baseline or motivation for your forecasts. Resources like industry magazines and associations to find data will set you up for forecasting success. One excellent resource is the Risk Management Association, as it publishes annual financial case studies.
- Break it down: Break down your more prominent figures into smaller components so that you can work more realistically on your financial categories. By going into detail in the minor economic areas, you’ll set yourself up for a total projection that is more likely to be accurate.
- Projections: Go even more micro and look at unit sales, prices, and costs. Don’t forget to separate fixed costs from variable ones and look at cash flow projections (use these handy templates by SmartSheet) to arrive at your final statement.
Once you have a rough estimate of your finances, it’s time to use technology to clarify your projection further.
Back Yourself Up With Technology
Financial projection can be a lengthy and drawn-out process. Supplementing your accounting skills with technology will be a must in easing your workload and increasing forecast accuracy. An app like ProjectionHub will come in handy to create projections, charts, and graphs for sales, expense, and balance sheets. This converts into an Excel file you can incorporate into your financial plan.
Build a Strong Skill Base
Financial projections need a solid foundation in accounting skills to work towards a financially healthy business. Build the skills up yourself by going back to school and earning an online degree in accounting. This will allow you to flex your business acumen while learning financial statements, principles, and auditing techniques. The best part? You’ll be able to continue your work-life balance as online education provides you with the flexibility to work on your own schedule.
Inaccurate forecasts can be the bane of business. If you aren’t focused on accurate projections, you’ll have mismatched expenses, angry investors, and an unbalanced bottom line. Use the tips above to take the guesswork out of the process and reach your financial goals accurately today!
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