Financial projections and forecasts are absolutely essential to all businesses, especially those hoping to attract the attention of potential investors. Based on anticipated expenses and business growth estimations, these projections can often be difficult to calculate.
A financial projection is simply a forecast of your business’ financial performance, based on estimations of its future revenues and expenses. Financial projections can be used as a means of analysing your business’ direction and growth. These financial projections are based on your business’ historical financial performance, which is used as a means of predicting future growth. Furthermore, the financial projection will be based on a series of predictions for external market factors.
Financial projections are an essential part of any business plan. Financial projections will help you to set specific targets and goals for your business for the coming year and allow you to track the progress and growth of your business against your estimations. It is extremely important for a business to set itself goals, and this can only be achieved alongside a detailed financial projection. As such, by creating a financial projection for your business you will be able to estimate how much investment is needed and what different approaches you will take over the projected period. The main reason for the failure of small businesses is the distinct lack of financial planning and control – with an in-depth financial forecast, you can put your business in the best possible position to survive and prosper.
There are three key financial statements which are essential to a financial projection. These are:
-Income Statement – this documents your revenues, profit and expenses from a given period.
-Cash Flow Projection – shows the timings of cash inflow and outflow of your business
-Balance Sheet – this is an overview of your business’ net worth and a summary of all financial data
These three financial statements can be used in combination with one another to create a detailed, in-depth financial projection for the future of your business.
Understanding Financial Projections and Forecasting
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by ExcelFinModels
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