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FINANCIAL PROJECTIONS

Definition: A forecast of future revenues and expenses for a business, organization,


or country. A financialprojection will typically take into account both
internal information such as historical income and cost data, and estimates of
the development of external market factors, providing estimated figures in addition to
projections of the general financial condition of the company in the future.

Financial projections should include three types of financial statements:

Income Statement: shows your revenues, expenses and profit for a particular period.
This is where you will want to do the bulk of your forecasting. The key sections of an
income statement are:

 Revenue – money you will earn from whatever goods or services you provide.
 Expenses –Direct Costs (i.e. materials, equipment rentals, employee wages,
your salary, etc.) and General and Administrative Costs(i.e. accounting and legal
fees, advertising, bank charges, insurance, office rent, telecommunications, etc.).
 Total Income – revenue minus your expenses, before income taxes.
 Income Taxes
 Net Income – total income without income taxes.

Cash Flow Projection: demonstrate to a loan officer or investor that you are a good
credit risk and can pay back a loan if it’s granted. The three sections of a Cash Flow
Projection are:

 Cash Revenues – This is an overview of your estimated sales for a given time
period. Be sure that you only account for cash sales you will collect and not credit.
 Cash Disbursements – Look through your ledger and list all of the cash
expenditures that you expect to pay that month.
 Reconciliation of Cash Revenues to Cash Disbursements – This one is pretty
easy: you just take the amount of cash disbursements and subtract it from your total
cash revenue. If you have a balance from the previous month, you’ll want to carry this
amount over and add it to your cash revenue total.

Balance Sheet: present a picture of your business’ net worth at a particular time. It is a
summary of all your business’ financial data in three categories: assets, liabilities and
equity.

 Assets – tangible objects of financial value owned by your company.


 Liabilities – any debts your business owes to a creditor.
 Equity – net difference between your organization’s total liabilities minus its
total assets

Types of Financial Projections:


A 12-Month Balance Sheet
This is a document that takes into account factors such as sales targets, cash balance and
other key monthly metrics to build out a holistic view of your business, including what
you owe and what your business is worth. This is important if you are looking to secure
a cash infusion from investors or extend credit with your bank.

A Sales Forecast
This predicts monthly sales for the coming year. It provides a breakdown of each item
you sell and an estimation of how much of that product you expect to move. Knowing
this can help you better allocate resources.

A Cash Flow Forecast


This is a weekly and monthly breakdown that focuses on the capital coming in and out
of your business. It’s the first line of defense against any financial problems your
business might face and provides an indication of its financial health. Regular review
can help you spot potential issues that may jeopardize your solvency and makes it
possible to take action before it’s too late.

An Expense Budget
A projected expense budget predicts how much it will cost you to meet the 12 month
targets you have set. It also serves as a valuable marker to ensure that you are not
over-spending on one business area at the sacrifice of another. Also, separating out your
fixed and variable costs shows you where you can cut costs if needed.