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When developing a business plan for your business, financial projections are an essential piece of the puzzle. These informed predictions ensure you are prepared for the possibilities ahead and can navigate them wisely. Utilize this helpful guide from Diamond Ethical to make your financial projections work for your business.
Be Open to Learning
Understanding financial projections is just one piece of being a business owner. Business is changing all the time, and even those entrepreneurs who have been in the game for decades have to adapt if they expect to keep their business growing and earning. If you think your business would benefit from a more informed direction, consider going back to school to pursue your MBA online. With an online program, you can expand your business acumen and learn more about accounting, balance sheets and how to develop more accurate financial projections.
Understand Why Financial Projections Are Important
Financial projections provide you with accurate numbers so you can make decisions that are better informed and manage expectations for future performance. This is especially true if you have prospective or current investors who will expect regular reports. But those projections are tough – if not impossible – if your company's accounting software isn’t up to the challenge. Remember, you need a program that’s easy to use, as well as cost-effective, to facilitate accuracy in your projections.
Making correct projections can really help you see what kind of tax bill your business will be required to pay at the end of the year. In most states, businesses are required to file annual financial reports and/or pay taxes to maintain their good standing. Failure to meet these requirements can result in your business being fined, receiving penalties or worse.
Develop Your Financial Projections
Determining the financial projections of your business is a straightforward process. You’ll need your balance sheet, your profit and loss statement and your expense and sales projections.
Your balance sheet is the foundation of your projections and is necessary in many parts of running a business. The Small Business Administration recommends updating your business's balance sheet weekly to keep your business's financial health strong, but if you don't have an up-to-date one, develop one to use for this purpose.
Your balance sheet should reflect your business's total assets by adding up its net worth and subtracting its liabilities. Your profit and loss statement, sometimes called an income statement, contains the details of your business’s revenue and costs. These can be done at any time, but most businesses prepare them each quarter.
Expense projections can be the easiest to calculate as many of these are static from month to month. Salaries, insurance, taxes and other expenses can easily be added up to give you an idea of what you can expect to spend to keep your business up and running over a certain period of time.
Sales projections can be more difficult to determine. While it's natural to be optimistic about how much your business will bring in, it's more important to be realistic when calculating sales projections. Take into account factors such as seasonal fluctuations in demand, overall market performance and sales numbers from prior periods to make the most accurate predictions.
Once you have these numbers at hand, you can use them to determine financial projections for your business. Err on the side of caution when possible to give your business the best chance of future success.Financial projections are an essential tool in running your business and keeping its finances in order. Develop accurate projections for your company and utilize them in your decision-making as a business owner to ensure your choices are always respectful of your business's bottom line, and the growth it shows over time will be all the thanks you need for your efforts.
Diamond Ethical is a 501(c)3 non-profit organization and technical advisory firm here in the Great State of Texas that helps businesses get access to a minimum of $100,000 in funding. They could come from every walks of life with some financial needs like business funding, marketing personal financial strategies, credit boost, lead generation and business development. Contact us today to get started!