This is a series of posts setting out how to make financial projections for a business plan. This post will act as a general index and be a place to reference all of the posts in the series.
It is designed as an overview to walk you through the process of creating your business plan financial projections using the free template.
Financial Projections Template
When using the financial projections template, simply amend the highlighted input elements to suit your purposes, and the template does the rest.
The financial projections template contains a selection of useful financial ratios for comparison purposes, together with revenue, net income, cash balance, and cumulative free cash flow by year in graph form for easy reference.
Outline Task List – How to Make Financial Projections
The outline process for producing projections using the financial projections template is shown below, follow the links for further details and information. If you’re not yet sure whether your business idea is viable, it might be worth carrying out a break even analysis before preparing a full financial business plan.
- Estimate revenue
- Calculate or estimate your gross margin.
- Estimate operating expenses
- Decide on the depreciation rate
- Find the interest rate
- Find the tax rate
In summary the Income Statement shows:
- Estimate start up expenses
- Estimate start up assets
- Estimate startup capital (equity)
- Calculate start up debt finance required
Opening Balance Sheet
- Enter fixed assets opening balance
- Enter cash opening balance
- Enter opening accounts receivable
- Enter opening inventory
- Enter opening accounts payable
- Enter opening other liabilities balance
- Enter opening debt
- Enter the opening debt payment term
- Enter opening capital
Projected Balance Sheets
- Determine days sales outstanding
- Determine inventory days
- Determine days payable outstanding
- Determine other liabilities days outstanding
To summarize the balance sheet shows:
Cash flow Statements
- Estimate capital expenditure
- Estimate new debt
- Enter the new debt payment term
- Estimate new equity capital
In summary the cash statement shows:
Financial Model Reality Check
It is unlikely that the first draft from the financial projections template will be perfect, review the financial model output and then make changes to see how they affect the projections, repeat the process until the income statements, balance sheets, and cash flow statements represent your proposed business plan activity, and the financial model behaves and responds in the way you expected it to.
When considering how to make financial projections remember that you should include all 3 financial statements, income statement, balance sheet and cash flow statement including details of any financing arrangements. The template will automatically ensure that the projections add up, but its important to understand how the financial statements inter-relate.
Try to keep the business model and projections simple, remember less is more. Do not over complicate the projections with additional lines or too many scenarios. Provide reasonable projections which you can justify, do not be too aggressive or over-optimistic when preparing them, particularly the revenue projections.
The post is one of a series covering the process of how to do financial projections for a business plan to start your business. This post will act as a general index and be a place to reference all of the posts in the series.