4 Common Questions About Financial Projections in Small BusinessJul 04, 2022
As an entrepreneur, you are responsible for keeping your business growing and running smoothly into the future. That's where financial projections come into play. These are essential to your long-term business plan and help you anticipate your future revenues and expenses. With this foresight, you can scale your business up or down with plenty of preparation time. In this article, I'm sharing how you can better understand financial projections by asking just a few frequently asked questions.
Are Financial Projections Really That Important?
Reliable projections are a huge boon for business owners with a growth mindset. You can utilise financial forecast data to clearly chart your future cash flows or help determine your tax obligations at the end of each year. Paying taxes and filing annual reports is a requirement in most states/ countries for remaining compliant, but your projections will enable you to prepare your tax budget ahead of time and remain in good standing.
A well-drafted financial projection is also a tool for showcasing your company's potential. Professional lenders state that they want to see a business plan that factors competitive research and industry analysis into your projections. This will help you secure a loan or investments that can kickstart a surge of growth.
How Can I Learn How To Make Financial Projections?
Realistic financial projections are based on a historical analysis of your business and the industry as a whole and an informed understanding of current events in your field. To that end, sharpening your overall business skills will help you develop the necessary acumen for making financial projections. Going back to school and earning an accounting qualification is a great way to learn about balance sheets and other skills needed for running your business.
Earning an MBA online is another way to sharpen your finance skills. Working toward an online degree benefits developing your business know-how while also granting flexibility to maintain your work and family obligations.
How Do I Make Realistic Financial Projections?
Forming an actionable projection requires compiling relevant information and certain financial statements. You will need the following resources on hand to make the most realistic financial projection possible:
• Sales forecast
• Planned expenses
• Income statement
• Cash flow statement
• Balance sheets
You can reasonably estimate future revenue and spending based on prior sales and expenses and evident trends apparent in your financial statements. If you do not have a background in accounting, you may consider hiring a professional accountant that can draft financial projections for your business.
Are There Accounting Software Tools I Can Use To Help With Financial Projections?
Software programs exist to simplify a significant number of your business management tasks, financial forecasting included. While some free options are available, the best accounting software will provide a robust suite of features that allows you to forecast revenues and gain at-a-glance cash flow insights. Utilising accounting software that works for you for financial projections can significantly lessen your accounting workload while minimising the possibility of human error.
You can start charting a course for the future with a greater understanding of financial projections' role in a business plan. Scouring through months and years of financial data may not be the most exciting task, but it will reveal upcoming opportunities within your budget. Investing in software or professionals to do the work on your behalf is an alternative that can yield equally powerful results.
Lucy Reed has been starting businesses since she was a kid, from the lemonade stand she opened in her parent’s driveway at age 10 to the dog walking business she started while in college. She created Gig Mine because she was inspired by the growth of the sharing economy and wanted to make it easier for entrepreneurial individuals like herself to find gig opportunities in their areas.
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