No one can see the future, but financial projections come pretty close. With the right financial projections, you’ll be able to:
- Forecast profits for your business
- Predict customer behavior
- Make educated decisions for your business
In many ways, financial projections give you the tools you need to make wise executive calls. That’s why any executive, entrepreneur, or new small business owner needs to know how to create financial projections and how to evaluate them accurately.
Fortunately, creating financial projections is pretty quick and simple, especially if you already keep good records of your business and its metrics. You’ll need metrics like:
- Your current profits
- Your expenses
- Your customers
- KPIs such as time spent on a page, ad conversion rates, and more
Once you gather all this data, you can then use software tools specifically for financial projections to see how your business may fare in the future given its current performance.
In general, keeping excellent records of past performance is vital. The more historical financial data you have to plug into your projection software, the more accurate models it can create when predicting performance for the future. And remember, all of this information will prove useful when it’s time to file your annual report.
Depending on what exactly you’re trying to learn or decide, you might need to make and analyze several different types of financial statements. Common statements or projections include:
Sales projections, which project your future sales based on past performance (usually over the year). For example, if you have a year’s worth of financial data for your business, the right software can project how much you will likely make in the upcoming year.
- Expense projections, which are similar to sales projections but instead track your likely expenses or costs of doing business.
- Balance sheet projections, which show the financial positions of assets, liabilities, equity, and other business metrics. These are excellent when trying to predict the health of your business a few years in the future.
- Income statement projections, which you can use to estimate your projected total income given your expenses, sales, and other streams of revenue.
- Cash flow projections, which will display the cash or cash-related activities that may affect your business in the future. It shows both how money is spent and how money comes into the business.
Unless you want to do a lot of calculating by hand, software tools are must-haves for financial projections. Accounting software, business management software, and similar financial tools will have everything you need to plug in your data and see the results when all the relevant information is compiled.
The best financial projection software will be relatively intuitive and easy to use. But don’t be surprised if it takes you a couple of weeks or months to fully grasp all of the tools and widgets that may be included! For the best results, read the reviews for financial projection software before purchasing or subscribing to it. That way, you’ll know the software is worth your time and money.
Not at all! The right accounting or financial projection software should give you everything you need to succeed when it comes to making accurate, usable financial projections.
That said, it may still be a good idea to sharpen your financial skills so you can build a healthier business over time. For example, you can go back to school and earn an online MBA, which will teach you new financial skills and help you develop your business savvy. Plus, online degrees give you the flexibility you may need to balance your business, schooling responsibilities, and any family responsibilities you may have as well.
Ultimately, financial projections can’t save your business if it is sinking. But they can give you an idea of how it may perform in the future. This will help you make wise business decisions, cut down on excess costs you don’t need, and maximize your revenue streams for even greater success in the future.