Show Your Investors You Mean Business
One essential ingredient of any business plan is the financial projections it sets out. Of course, these projections need to be realistic and accurate. There are several ways to ensure these criteria are met.
Businesses rarely encounter zero issues, so it's important you're not overly optimistic. You should run through as many scenarios as possible, both good and bad. This way, you're more likely to come up with more realistic future projections.
Scenarios are important as many things can change along the way. Taxes may rise, other government regulations may come into play, or you could be undercut by competitors. Of course, tax cuts could occur, and you could see an increase in growth due to competitors' failings.
Assess and Reassess
It's also important that you regularly assess your forecasts to see if they mirror your predicted expectations. Expenses are a major part of any business. Although fixed expenses such as rent and insurance won't change over 12 months, variable ones such as wages, raw materials, and commissions could.
It's doubtful any lenders or investors will show interest in a business if it can't provide some evidence they'll get a return on their money. The same principle applies if the business is self-funding, as accurate projections will allow you to control your operating budget properly — all good reasons financial projections are vital to any business.
Financial projections also allow you to look back on past forecasts to see where you may have gone wrong and more accurately predict the future. By looking through previous projections, you're likely to be better prepared for future competitive challenges.
Several financial statements should be included in any financial projection. They include a profit and loss statement, cash flow statement, and balance sheet. The P&L statement will allow you to estimate the company's growth and turnover over several years.
Policies relating to financing and investment and cash flow operations are part of a cash flow statement. Finally, a balance sheet will help you keep track of incomings and outgoings, thus avoiding financial problems. It will also show your company's value, how much debt it carries, and the size of your working capital.
A Helping Hand
Creating financial projections can be simplified with certain software. Good financial projection software should include various budget templates that allow for multiple versions. It should also allow you to look back on past budgets to create more accurate future forecasts. Comparing forecasted revenues and expenses with actual figures and cash-flow forecasting over different departments should all be attributes of good financial projection software.
Putting together financial projections without proper inventory management can lead to a business losing important information relating to stock, such as dimensions, amounts, weight, and location. Inventory management systems can synchronize orders and inventory across several marketplaces to ensure stock is adjusted each time a sale is made to avoid overselling. Overselling and overstock can be costly, making inventory management software a cost-effective solution and an important part of financial projections.
Hone Your Skills
You can make life easier for yourself by brushing up on your bookkeeping and accounting skills. This can be achieved by enrolling in an online course. Earning a degree with a specialty in accounting will give you a better understanding of financial statements such as balance sheets, profit and loss forecasts, and cash flow, which will enable your business to run more efficiently.
By putting together a financial projection, you're eliminating all the guesswork. Without one, it's unlikely any investor or lender will part with their money without first having seen what they're likely to get in return.
Do you need help building your financial legacy? Let the experts at Beacon Wealth help. We’re dedicated to offering the best advice, tools and resources to help you meet your financial goals. Reach out today to find out more.