Financial projections are an important part of any business plan. They help you understand your expenses, revenue, and overall financial health as a company. Plus, they are easy to make if you have the right information and tools. In this post, we will walk you through each step of creating basic financial projections for your new business.
Project Your Spending and Sales
You will need to create a spreadsheet and record your expenses and income. You can also use the cash flow projection to track your money. A balance sheet will show you how much money you are earning, spending, saving, and investing at any given time.
A balance sheet is a snapshot of your financial situation at a specific point in time. It shows your assets, liabilities, and net worth. In other words, it tells you how much money you have (assets), what you owe (liabilities) and what is left over after subtracting the two figures from one another (net worth).
Create Financial Projections
You could write a business plan, but that would take time and effort. If you do not have the time or money to hire a professional, you can do it yourself. A financial projection estimates your anticipated revenues and expenses over the next year or two. There are two main reasons why this information might be useful:
– It will show lenders that you have a plan for your business.
– And it provides an overview of how well your company is doing overall.
You can use your financial projections to create a budget. A budget is a list of all the money you expect to come in and go out over a year. It helps you manage your finances more effectively by providing concrete goals for expenses, income, and profit.
Determine Your Revenue Streams
Your revenue streams are the sources of income for your business. You can have one or many, but they will be the different ways you earn income. For example, a retail store may sell products while a consulting firm might charge clients by the hour or project.
If you are just starting, it is likely that your only revenue stream is product sales. But as you grow your brand and gain customers and recognition, you might want to consider other options like service sales, membership fees, or advertising/licensing opportunities (if applicable).
The personal loan you are taking out can help you develop new revenue streams by allowing you to spend money on marketing and advertising, which could lead to increased sales.
Create a Sales Forecast
Historical Sales Data: If you have access to historical sales data (or can get it from your suppliers), use that information to help create your initial sales forecast. This will give you a sense of how successful the product has been and how much demand there is for it in the market.
Seasonal Trends: Depending on what kind of business you’re starting, it may be helpful to look at seasonal trends when creating your sales forecast. For example, if your company sells ice cream during summer months only and then retools its equipment so that it can sell chocolates beginning in autumn, those seasonal fluctuations should factor into your projections.
Industry Data: It is important to understand what competitive industries are doing when they make projections like these because they will often overlap with yours—and even if they do not directly compete with yours today, they might do so later on down the road.
Create an Expense Budget
An expense budget is a list of all the fixed and variable expenses you expect to incur during a particular period. It is also known as a budgeted income statement, or a cash flow forecast.
When creating your first expense budget, start by listing everything you think your business might need to spend money on over the next year—even if it is just an estimate. You can add more specifics later when you have better information.
Create a Profit and Loss Statement
The profit and loss statement (also called a P&L) is a financial document that shows how much money has been earned or lost, how much money has been spent or received, and what is left over. It is also a way to see how much money you have paid in taxes—and if your business qualifies for tax breaks or credits.
The P&L calculates two main numbers: revenue and expenses. Revenue is simply the amount of money that comes into your business from customers buying your products or services; expenses are all the costs associated with running the business (including salaries).
Create a Cash Flow Projection
The cash flow projection is a financial tool of the future. It shows how much money you expect to make when you will be making that money, and what will happen to it after it comes in. A well-made cash flow projection gives readers a good idea of how their business will perform over time, which is essential for any small business owner who wants to stay afloat for more than a few months.
It is important to remember that this document only covers part of the picture: You still need an income statement and balance sheet as well if you want a full picture of your business’s financial health (and if not now maybe someday).
Create a Balance Sheet
Your balance sheet is a snapshot of your company’s financial health at a given moment in time. It is a statement of assets, liabilities, and equity. Assets are things that have value to the company and include cash, property, equipment, and inventory. Liabilities are things that the company owes others (such as loans) or has promised to pay in the future (such as tax payments). Equity is everything else–the difference between assets and liabilities.
Once you are done with your projections and have a good sense of the business cycle, it is time to get things up and running. To make sure you stay on track with your financial plans, you must set up some kind of monitoring system.
With the help of these financial projections, you can see how your business will perform over time, and make adjustments as needed. In addition to looking at the big picture, be sure to check in on your overall financial health regularly by monitoring cash flow and reviewing balance sheets.