The Savvy Entrepreneur’s Guide to Making Smart Business Decisions with Accurate Financial Projections

Predicting the future might not be possible but making educated projections about your business’s financial future definitely is. In fact, like filing your business’s annual report with the state, it’s essential to running a successful business. All business owners should emphasize understanding the importance of sound financial projections and how to calculate them. Check out this guide from Credit Carrots to developing accurate financial projections for your business today.

1. What Are Financial Projections?

Your business’s financial projections allow you to make educated predictions about the future financials of your business. The financial projection is a vital part of a solid business plan and helps business owners better understand their business’s standing so that they can make smart, growth-focused decisions.

Financial projections can be used in many ways when running a business. First and foremost, they should be the blueprint for how you structure your business’s finances. For investors, financial projections give them the information they need to decide when and if to invest further in a business. The more accurate your projections, the more confident you can be in the choices you make while managing it and your investors can be in continuing their relationship with your business.

2. How Do You Make Accurate Financial Projections?

Financial projections can use a variety of information to inform their numbers, but most will be based on three things: the sales expected, the expenses expected and the company’s balance sheet. While the balance sheet is the only one of these a business owner can be certain about, efforts can be made to determine numbers that are as accurate as possible for the sales and expense projections.

For established businesses, sales projections will be easier to make as historical data can give a good idea of what can be expected in any given period. That being said, past performance doesn’t guarantee future results, and factors outside of the business such as the state of the economy and product demand can greatly impact the success of any sales period. When making sales projections, be conservative in your numbers as it’s better to be pleasantly surprised with extra income than depend on sales to stay afloat, and then those sales fail to come.

Because business expenses often stay the same, making expense projections can be easier than sales. You know, for instance, how much you need to pay toward your business’s mortgage or rent each month. Your payroll costs likely remain the same or very close to it between periods. Take advantage of these ready numbers to make as detailed predictions for expenses as possible.

Your balance sheet is a document that should be frequently updated to accurately reflect the status of your business’s financials. It should show the assets of your business as determined using your liabilities and shareholder equity. Using it and your sales and expense projections, you should be able to get a realistic and fairly accurate projection of your business’s future finances.

3. How Can I Improve My Business Outcomes?

While financial projections are tremendous tools in running a successful business, education is the most powerful tool you can have. Consider going back to school to obtain your MBA. Through it, you can gain a better understanding of not only financial projections but accounting, payroll, balance sheets and more.

You can also try to reduce expenses through the use of free software tools. An invoice generator, for example, can be used to create great looking invoices for your clients. These will communicate clearly billing terms with your clients, saving you money both on creation and through prompt payment.

To succeed in today’s market, your business needs every advantage you can give it. Learn to make accurate financial projections and use them to shape your business into something that lasts and sustains you throughout your lifetime.

We are not financial advisors, and no content on this site should not be taken as financial advice. No guarantee can be made if you invest based on the information provided on this blog. We make no warranty of any kind regarding the blog and/or any content, data, materials, information, products or services provided on the blog.