Originally published: 3/23/2020
Updated: 1/8/2023

Why are financial projections important and how can they inform a company’s financial analysis to increase confidence in the numbers?

To answer that question, we need to take a step back. Preparing financial statements is an important first step in the business planning process because these financials form the basis for predicting business outcomes for future reporting periods.

Using that foundation financial revenue and expense projections are generated from compiling the internal and external accounting data you already use in the day-to-day management of your business. These projections allow you to get a more accurate view of how successful your business can be so you can determine what to keep and what to cut when planning.

Projections and Business Planning

Of course, creating financial projections isn’t an easy task, but it’s a very important part of developing a sound business strategy to lead your organization into the future with the assurance that you will likely have the cash needed to get you there.

As your business grows it will need more cash to generate and support additional revenue streams. Financial projections help you assess what additional assets are needed to support increased revenue and the potential impact on your balance sheet. The financial plan you create from these projections will also indicate how much additional debt or equity you need to remain solvent and healthy.

If your business has been in operation for more than a year, creditors will not only request historical data based on your past performance, but they will also ask for financial projections. Creditors typically want financial data and projections for the three to five years before and after the date of your funding request. This financial modeling helps them to better understand what the future may look like for your business.

Financial projections should include a forecasting of the income statement, the balance sheet, and the cash flow statement. Projections are made by the month for the first year and then by the year for the next two years.

Financial Projections Accounting Services

Developing reasonable financial projections for your expanding business can be complicated. Our expert finance team looks at several factors when deciding which financial statements should be included in a business plan.

All businesses, whether in the startup or mature stage, will be required to supply projected financial data for creditors or investors. At CFO Selections our team develops financial projections, determines effective resource allocations, and sets clear objectives. Here is a list of important financial statements we include with projections:

Historical Financial Data

For Startups

Many entrepreneurs complain that building accurate revenue and expense forecasts requires too much time – time that would be better spent selling rather than planning. Unfortunately, few investors will make a financial commitment if you don’t have these forecasts. We can help you determine your financial requirements and develop more efficient planning processes as well as improve cash flow forecasting for budgeting and operational or staffing plans.

For Mature Businesses

We help established businesses meet creditor requests for historical data related to the company's performance for the last three to five years, depending on the length of time in business. Typically, the historical financial data to include would be your company's income statements, balance sheets, and cash flow statements for each year that you have been in business (usually for up to three to five years).

Future Projections

Creditors and investors will also want to see projected financial data that reflects revenue and profit expectations. Our financial experts will help:

• Forecast important reports and budgets like income statements, balance sheets, cash flow statements, and capital expenditure budgets. (For the first year of business, we include monthly or quarterly financial projections. After the first year is recorded, quarterly or yearly projections will suffice for the next four years.)
• Ensure your projections match funding requests so there are no inconsistencies. We can also explain any assumptions that accompany your projections.
• Write an expert analysis of your financial information, which can include ratio and trend analysis along with charts, graphs, and other visuals.

Our CFO consultants are well-qualified to assist you with business modeling, forecasting, and business analysis. Our financial forecasting and projecting process begins with taking the time to understand your specific long-term and short-term needs and goals. We can then perform a thorough financial assessment and provide financial projections and recommendations to help your business succeed.

Find out more about our consulting CFO services now, or reach out to us for more information!