It is quite common to hear about Financial Projections in the business plan but, that’s not the only place you will find them. They exist in many other key business documents as well, like the information memorandum. The information memorandum is similar in many ways to a business plan but, beyond that, there are several business documents in which you’ll find financial projections.
Financial Projections Defined
Financial projections - whether in the business plan, Information Memorandum, or anywhere else - are often confused with financial forecasts and financial models.
According to study.com, “A financial forecast is a prospective financial statement that is put together based on a belief of an entity's expected financial position for the coming months or year. These assumptions are based on what conditions may exist in the future for that entity. […]A financial projection is different in that it is a hypothetical guess as to what will happen in the future. A financial projection is an assumption about an entity's future operations and cash flow.”
Financial projections in the business plan are also often confused with financial models. As explained by Corporate Finance Institute, “A financial model is the summary of a company’s performance, based on certain variables, that helps the business forecast future financial performance. In other words, it helps a company see the likely financial results of a decision in quantitative terms.”
Financial Projections in the Information Memorandum
Financial projections in the business plan are usually the first thing people consider when they hear the term financial projection. As already mentioned, that’s not the only place that they exist. Another common place is in the information memorandum.
An information memorandum is similar to a business plan in a number of ways. It has many of the same core sections. It is also meant to sell the business. Though, in the case of the information memorandum “sell” is usually literal. Whereas in the Business Plan that is meant figuratively. In either instance, despite the audience being different, the financial projections will be quite similar.
These are the two formats where the financial projections tend to be quite complete. They will closely resemble the traditional financial statements that are prepared monthly.
Financial Projections in Other Places
Besides the information memorandum, there are a number of business documents which will showcase financial projections other than in the business plan. One thing to realize is that some financial projections are more detailed than others.
Typically, financial projections in the business plan and information memorandum will be quite detailed and lengthy. In other business documents, like the pitch deck for example, they will be abbreviated. Other condensed versions may be found in a teaser or executive summary too, for example.
In these cases, it will focus only a top line information, typically including only revenue, total expenses, payroll/labor information, total profits, and cash flow information. Depending on the audience they may be more detailed but, that is a standard overview of what they will look like for consolidated purposes.
It’s easy to see that Financial Projections are varied based on the document they are in. They are also more common than people realize and differ in important ways from financial forecasts and financial models.
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