A Brief Overview of 5 Types of Financial Projections in Your Business Plan

 

The Financial Projections Business Plan are arguably one of the most important aspects of the business planning process.  Businesses serve many purposes, but they all run on money.  Assets and expenses are essentially the gears of your business.  As such, it is imperative to understand how they work.  That is what creating financial projections for your business plan allow you to do.

Most of the financial projections, as well as other aspects of the business plan, will be presented with both short- and long-term goals.  Short-term projections account for the next year and will be broken down by month.  Long-term financial projections on the other hand, are typically for three or five years, broken down into year.

Sales Forecast

When coming up with a business idea and creating a business plan, your very first consideration is your product or services.  What is your business going to sell?  This question leads to determining how much you can – and need to - sell.  This becomes your sales forecast which is one of the first financial projections in your business plan.  As your company begins, this will be based off market research and assumptions.  After you have been in business, this will also be based on your actual performance.  It will also be impacted by your expense budget.

Expense Budget

Your expense budget helps in determining your sales forecast by informing you how much you need to sell.  The expense budget will be a detailed breakdown of how much it will cost you to run your business.  Expenses add up quickly and is that is why it is so important to get them down on paper so you can manage them.  It is only once you understand your expense budget and sales forecast that you can dig into the other financials of your business plan.

Income (Profit & Loss) Statement

Businesses like to understand their margins and other key business ratios to make informed decisions.  One of the financial projections the sales forecast and expense budget facilitate is the profit and loss (p&l) statement, also commonly referred to as the income statement.  This is one of the key financial statements of the business and how you will likely synthesize your actual financial performance on a monthly basis.  Creating this projection also creates the benchmarks for how your business should ultimately run.

Statement of Cash Flow

It is just as important to consider when you will generate revenue and incur expenses as it is to know how much you’re going to make or spend.  This allows you to manage your cash appropriately.  The way you will understand this is through creating the statement of cash flow.  Outside of the Business Plan, in day-to-day operations, you may even have a daily cash flow projection.  It is arguably one of the more useful financial projections in the business plan, though they all play their part and provide different insights.

Balance Sheet

Last by not least of the financial projections in your business plan is the balance sheet.  The balance sheet is like the report card for your business.  It allows you to understand where your assets and liabilities are, which gives you all sorts of vital information such as how liquid your business is.  It is a brief overview of your total financial health.

You may find other financial projections in a business plan but, these are the main ones.  They all give a different view and understanding of how your business is performing.  Combined, they give you a complete picture.