Cash Flow Analysis And Forecasting The Definitive Guide To Understanding Reinforce Your Business Plan With Sound Financial Projections

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Reinforce Your Business Plan With Sound Financial Projections

As strange as it may sound, creating financial projections is much more important and complex than actual results. More than just numbers, planning is important. Again, the means to an end is more important than the end here.

Without financial projections, a business is like kicking in the dark without a flashlight and a map, and you won’t be able to gain investor confidence or get financing. Even if you are self-funded or have a family business, you need financial projections as a guide and a barometer to measure the performance of your business.

You will need to follow these steps to get yours financial projections:

Develop your 3-5 year sales forecast: You can make your forecast based on historical sales data, competitive comparisons and current economic trends. It’s usually a mixture of the two and you need to understand that your casual lenders won’t believe you anyway! We all want to believe that our sales will skyrocket, but remember that your investors will hold you accountable in the future. Keep in mind that if you need more capital in 3 years, these same investors are a great source of more money, but they will measure your current progress against your original projections.

Create a budget for expenses: These include costs for your cost of goods as well as your operational costs such as equipment, payroll, rent, marketing, insurance, depreciation, etc. Typically, after estimating the cost of goods, we then divide operating costs into broad categories such as: sales and marketing, administration and then research and development or miscellaneous. Production costs.

Imagine a statement of cash flows: This refers to the flow of money into and out of your business and reveals your liquidity or ability to use cash when needed. (and importantly for lenders, the ability to pay them back!) A cash flow statement is critical to investors and lenders, as they will want to ensure that your business plan includes enough cash to continue operating.

Create your income projections: This refers to your financial position, derived from revenue and cost of goods sold, gross profit and operating expenses. The amount of income you plan to make is important in terms of long-term viability, but in some cases, such as internet sales, growth and customer numbers sometimes become just as important.

Consider your assets and liabilities: Assets are things you own that have value, while liabilities are amounts you owe others. When building your projections, you need to make sure you include the buildings, equipment, vehicles, and the like that you will need to support your business plan.

Come up with your breakout analysis: The key area of ​​interest for projections is when you are ready to make a profit in your business based on a combination of fixed costs, variable costs per unit of sales and revenue per unit of sales. This is the final stage of your business where expenses equal actual sales.

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