This free Excel Monte Carlo simulation calculator uses triangular distributions to randomly select values for sales volume and unit cost and using fixed values for selling price and operating expenses, calculates the average profit for a startup business based on one thousand iterations of its profit model.
The preparation of financial projections for startups and established businesses need different approaches.
Established businesses have a history of past performance which can be analyzed and used together with any newly developed plans and targets to produce its financial projections. However, startups, by their very nature, have no such history, and different methods need to be adopted.
The terms planning and forecasting are often used to mean the same thing, however, it is important to distinguish between the two. Forecasting is simply the process of estimating the future financial outcome of a business. taking in account past and current performance, whereas. planning takes into account the aspirations of the business and its management.
It is important to consider both the cash basis and accrual basis of accounting when preparing financial projections.
Cash basis accounting records revenue and expenses when cash enters and leaves the business, and the accrual basis of accounting records revenue when earned and expenses when the benefit of them is received.
The terms financial budget, financial forecast, financial projection and pro forma financial statement are often used to refer to the same thing. However, while they have a very similar format, normally comprising a balance sheet, income statement, and cash flow statement shown over a period of months or years, they are each based on a very different set of assumptions.