It is not easy to create a realistic financial model for your business. It is important to work with someone with expertise and experience in both startup business planning and accountancy to create projections, which will essentially drive decision making across all elements of your business.
Financial projections is the presentation of a financial picture of the future of a business based on certain business model assumptions – to include level of Sales, Cost of Sales, Expenses, Staff, and Route to Market. Generally covering a period of 3 or 5 years, financial projections include Cashflow, P&L, and Balance Sheets. Prepared by management, the forecast will detail how a proposed financial package will change the future events in the company – they will be critically reviewed by investors and finance providers before such financial packages are agreed.
Donncha works with startups and SMEs to develop financial projections. Projections have been created for businesses operating in a wide variety of sectors, for the purpose of accompanying:
** Bank finance applications
** Grant /Enterprise Agency applications to include HPSU, CSF, Priming and Expansion Grants.
** Feasibility Studies
** Internal Business & Marketing Plans
Financial projections are a critical element of business plan preparation – see my Business Plan preparation case study for more information.
The following financial statements are generally required:
► Three year future Cashflow statements broken down by month in year 1, and by quarter or year in years 2 and 3.
► Profit & Loss projections (annual) for 3 years.
► Balance Sheet projections (annual) for 3 years.
If the business is trading, Balance Sheet and P&L statement for the previous two or more years will also be requested.
How are financial projections created:
The key step is to devise formulas to create the financial model for Sales by breaking down revenue streams and Cost of Sales. Figures can then be input for Unit Sales by revenue stream for each month over the 3 year period. Expenses can then be input, based on historical date and domain knowledge of the promoter. When the Cashflow and P&L are finalised, the financial projections will determine how much investment /finance is required for cashflow and capital investment in the first year or two of the business.
The process of creating financial projections:
The promoter/ management team will be fully involved in the process. A standard spreadsheet is used to create financial projections. A full day meeting will be required.
Please contact Donncha for a quote to assist you to prepare financial projections for your business.
See also Financial Projection Workshop in our Training section.
Finally, I would suggest reviewing my old blogarticle entitled, ‘How to make your business plan or tender document look professional?‘ It details how to copy Excel projections into your business plan document.