Financial projections are documents that are used to forecast the revenue, expenses, and profits of a company by analyzing currently available data. Being able to make good financial projections is key to predicting your company’s financial health and developing long-term strategies for success. So here’s what you need to know, courtesy of Melinda Curle.
Why Financial Projections Are Important
Financial projections help your business in several ways:
- Predicting product success. Projections may help decide whether a product or service will be profitable or if it should be discontinued.
- Making better management decisions. Knowing about the profitability of a product, service, or even a whole department will help managers develop strategies.
- Getting estimates on future sales. Projections can help find future revenues and can predict sales figures by predicting future demand.
- Determining where to set prices. With a good financial projection, you can figure out the optimal price for goods and services for maximum profit.
- Securing funding. Financial projections can be used to get loans or to attract investors.
How to Make Financial Projections
Financial projections not only help your business decide the best course of action for a department, product, or service, but they also provide answers for prospective investors, lenders, or shareholders. They can offer a good snapshot of the company’s health and its ability to perform well in the coming months and years.
To make a financial projection:
- Gather documents and data. You’ll need documents detailing recent sales and gross margin statements by product line, cost of goods sold, accounts receivable, operating costs, and expenditures. All of this is much easier if you take advantage of modern invoicing software to streamline the bookkeeping process.
- Make a sales forecast. Using available data, figure out the demand you expect to see for all of your company’s offerings.
- Estimate future spending. Along with figuring out how many sales you expect to get, consider how many expenses the business will have to pay.
- Make income projections. Use sales and expense forecasts to predict profit and make balance sheets.
- Create a cash flow projection. Use the above data and documents to predict how much money will be coming in and going out to show investors the financial health of the company or product.
- Use software. By using software, you can make the process of projecting finances much simpler.
Use these projections to make plans for future offerings. They can help you secure funding, make decisions, and develop strategies.
How to Sharpen Your Finance Skills
A good business owner is always learning. This involves keeping up with the latest trends and innovations in accounting and other business areas but also keeping your skills strong. Consider going back to school to get your MBA, or Master of Business Administration, to increase your business acumen and learn the latest financial skills and strategies. You can earn a degree online, learning from your office or even the comfort of your home, for maximum flexibility and work-life balance.
Continue Developing Financial Strategies
Making good financial projections
and continuous learning will keep your company financially strong and allow you to stay on top of the latest strategies. So be proactive about improving your business strategies and getting all the data you need to make the best decisions possible.
Do you need a freelance writer to create content for your B2B website? Melinda Curle is focused on creating content that converts! She specializes in SAAS blog posts and newsletters that grab your reader’s attention and hold it until they complete your call to action. Call 703-975-8753.
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