Business Plan Financial Projections

Financial Projections for a New and Existing Business

Financial projections are an important part of your business plan. The projections give investors and lenders an idea of how well your business is likely to do in the future. Financial projections include both income statements and balance sheets.

Financial projections are important for a number of reasons. First, they give investors and lenders an idea of how well your business is likely to do in the future. This can help you secure the funding you need to get your business off the ground. Financial projections also help you track your progress over time. You can use them to make sure your business is on track to meet its goals. Finally, financial projections can help you spot potential problems early on, so you can take corrective action.

 

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes.

 

Necessary Financial Statements

There are three main financial statements that you will need to include in your business plan financial projections:

 

Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

  • Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
  • Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
  • Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

 

Sample Income Statement

Income Statement Projection

for the period ending December 31, 20XX

 

Revenue

Product A Sales $10,000

Product B Sales $15,000

Total Revenue $25,000

 

Expenses

Cost of Goods Sold $6,000

Salaries and Wages $8,000

Rent $1,500

Marketing and Advertising $2,500

Total Expenses $20,000

 

Net Income $5,000

 

Cash Flow Statement & Projection

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

  • The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
  • Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
  • It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

 

Sample Cash Flow Statements

ABC Company Cash Flow Projection

for the Year Ended December 31, 20XX

 

Cash flows from operating activities:

Cash receipts from customers $ 1,000,000

Cash payments to suppliers and employees $    600,000

Interest and taxes paid $      50,000

Net cash provided by operating activities $    350,000

 

Cash flows from investing activities:

Purchase of equipment $ 200,000

Sale of investments $   10,000

 

Net cash used in investing activities $ 190,000

 

Cash flows from financing activities:

Proceeds from issuance of debt $ 1,000,000

Repayment of debt $      50,000

Proceeds from issuance of equity $      10,000

Net cash provided by financing activities $ 1,060,000

Net increase in cash and cash equivalents $ 1,220,000

 

Balance Sheet Projection

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

 

Sample Balance Sheet

ABC Company Balance Sheet Projection

as of December 31, 20XX

 

Assets:

Cash and cash equivalents $ 500,000

Accounts receivable $ 200,000

Inventory $ 100,000

Prepaid expenses $   50,000

Total assets $ 850,000

 

Liabilities and equity:

Accounts payable $    300,000

Short-term debt $ 1,000,000

Long-term debt $      50,000

Total liabilities $ 1,350,000

 

Equity:

Common stock $ 100,000

Retained earnings $ (600,000)

Total equity $ (500,000)

Total liabilities and equity $ 850,000

 

How to Create Financial Projections

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.

 

Cost assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

 

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

It is important to track your company’s capital expenditures over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Funding

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

It is important to track your company’s funding sources over time to ensure that it has a healthy mix of financing options. A healthy balance is necessary for a successful business.

Tax

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

It is important to track your company’s tax liability over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

It is important to track your company’s debt levels and asset values over time to ensure that they are in line with your projections. 

 

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

 

Conduct a ratio analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

  • Gross margin ratio
  • Operating margin ratio
  • Return on assets (ROA)
  • Return on equity (ROE)

 

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

 

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

 

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

 

Create multi-year financial projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.

 

Business Plan Financial Projections FAQs

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

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