A key part of the role of senior executives of any business, large or small, is planning or forecasting the future, especially preparing financial projections. Indeed, forecasting and planning are essential to business progress. American business author Alan Lakein stated, “Planning is bringing the future into the present so that you can do something about it now.” Good financial projections help secure the funding that every business needs to thrive and grow. 

What Are Financial Projections and How Are They Used 

Good financial projections include the thinking, assumptions, facts, and data that a company has available reflecting what a company expects to happen. Projections are used to provide the answers that may come from lenders, investors, and stakeholders, and to guide the decisions and actions of management. 

Financial projections are used to provide estimates about future sales and profits, for planning budgets, planning capital expenditures, determining how to manage resources, anticipating cash flow, and determining whether a new product, new service, new plant, or new location will be profitable. Projections help determine whether any investment may pay off and how much profit an investment will deliver. Projections help attract prospective investors because they provide a “picture” of the company’s future performance potential. And projections help secure funding.  

6 Financial Projections that Can Help Secure Funding 

Here are the 6 financial projections that every business needs in its business planning and to help secure funding: 

  1. Sales projection. Forecasting sales revenue for every month, quarter, and year is a key starting point. You’ll need to know what your sales drivers are. Your figures should include an understanding of seasonal patterns, and consider factors like economic trends, weather impacts, and competitive influences. This information will help formulate sales goals and marketing plans. 
  2. Expense projection. This projection will include regular operating costs such as rent, utilities, and payroll plus expected future expense outlays. Also, include in your calculations trade price trends and provide an estimate for unexpected expenses. 
  3. Balance sheet projection. This will provide a clear picture of the business’s assets, liabilities, and equity—the primary determinants of the business’s net worth. 
  4. Income statement projection. This projection presents the net income of a business—the profits of the business. 
  5. Cash flow projection. Based on your forecasts of sales and expenses, your cash flow projection shows the movement of money into and out of the business. It will allow you to anticipate any financial challenges. 
  6. Break-even analysis. This analysis will tell you how many units to sell at various prices to cover your costs. Thus, it is valuable to help set profitable pricing.  

Projections should be used to understand and prepare for best- and worst-case scenarios. Monitoring projections is key to understanding if your results are on-target, or to develop action plans that can change the trajectory of your results. 

Projections will help secure funding by providing funding sources with the information they need about your profitability—are you making money; about your liquidity—can you pay your bills; about the strength of your market position—are you competitive; and about the strength of your operations and management. 

Best Practices for Creating Financial Projections 

First, use realistic assumptions about the future. Don’t be overly optimistic. 

Second, be accurate with your data. No matter how sophisticated your forecasting methods are, if the data that you use is inaccurate or outdated, your forecast won’t be useful. 

Third, while the data must be based on past realities, make sure that you demonstrate that your projections can change as economic, market, and competitive factors change. 

Fourth, review your projections carefully, and present them clearly and simply.  

Get Expert Alternative Financing Assistance 

Contact Multiple Financial Solutions. We offer a portfolio of alternative funding solutions for companies that can’t get funding from banks including business lines of credit, merchant cash advances, and commercial real estate funding. We focus on businesses that have been active for 2+ years and are looking to grow to the next level. If you are facing a funding deficit, we are ready to help you.