Developing projections of revenues and expenses is often confusing and difficult. Where do you start? How do you do them? Why is it so important? Where can you get help?
First, financial projections are normally required along with a written Business Plan if you are seeking financing for your new business. Banks and investors want to see how you intend to repay the loan you are requesting. But more important is the fact that it forces you to take a hard look at the cost of starting and operating your business and the financial risk that you are taking.
Start by looking for a template that you can use to guide you through the development of your financial projections. This template will guide you through the process and provide you with a finished format of financial statements – Startup Costs, Income Statement, Cash Flow Statement, and Balance Sheet. A good example of a Financial Projection template is available on the SCORE website (www.score.org) under Templates and Tools and includes the template, notes explaining how to complete the financial projections using the template, and a sample of a set of finished financial projections.
It is critical that you do your research before beginning the development of your projections. Your estimated Revenues and Operating Expenses must be based on valid information. Many entrepreneurs tend to overestimate revenues and underestimate expenses which results in a shortfall in working capital. This is one of the primary reasons for new business failures.
• Do your research in order to accurately develop estimates of your startup costs and your monthly revenues and operating expenses.
• Get help if necessary. Request mentoring from SCORE or consult with your accountant.
• If you will do them yourself, look for a good template that you can use to develop a full set of financial statements including Startup Costs, Income Statement, Cash Flow Statement, and Balance Sheet.
• Understand the completed Financial Projections and use them as a tool in guiding your new business.