Development of Financial Projections

When preparing a business plan, there is no way around the need for financial projections. This is true whether you are preparing to seek funding for your business or simply developing a business plan for internal use in guiding yourself and your business into the future.

The process of developing financial projections can seem intimidating, but such projections are based more on the environment of your business, your industry, and the market in which you operate than on guesses and formulas.

The Breakeven Method

One method to establish the basis of your financial projections is the “breakeven” method. In this method, you would take the numbers from each product’s breakeven analysis, add them all together, and use that sum for your basic sales forecast. From these numbers, you can also derive your needed inventory amounts, related payroll, equipment amounts and, when mixed with monthly average industry sales, can even plot your own monthly operations budgets.

Sources of Information

There are many sources of information when preparing financial projections. The U.S. Census Bureau is an excellent one for learning the size of the market and number of competitors in various market areas. Another source may be the Small Business Administration’s “SCORE” program. SCORE is a group of retired business executives who work for the Small Business Administration to supply consultation services to small businesses. Both of these sources are free, but are considered underused by the small business community.

Last Minute Details

Finally, compare your projections against any available sample plans, rechecking all numbers that seem out of line and consider any associated risks that may affect your business. These, if not already addressed in your risk analysis portion, should be added promptly.

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