The CFO'S Perspective

Financial Projections and Analysis – Considerations for Businesses

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.

Topics: Analysis Financial Projections

Understanding the Importance of Financial Modeling: Should You Build a 3-Year Model?

“How do you build a three-year financial model?” It’s a question we get (and answer) a lot.

A financial model is a type of financial projection that pulls together important data to allow organizations to analyze their current financial position and predict their future financial position. While effective financial modeling takes significant time and expertise to complete, the considerable benefits provided make it well worth the investment. Financial modeling is an essential tool used to manage risk, allocate resources, make smart investments, secure funding, and develop long-term growth strategies.

Some projections are over a longer time horizon while others only cover a short time horizon. However, whether your financial model covers two, three, five, or ten years, it’s important to understand what it should accomplish, why you should do one, and what it should include. Find out now why you need financial modeling and how to build a financial model for your organization that will offer the insights needed to make key strategic decisions.

Topics: Finance Trends Planning Financial Projections Risk Management

How Much Will Raises Be This Year?

With so much economic uncertainty the employment landscape in 2022 will likely remain tumultuous. Information about how many people are employed, where, and for how much is going to continue to dominate the business news headlines. And much like last year, compensation will be at the forefront of many employees’ minds as they watch their cost of living increase and worry whether their pay will keep pace.

Of course, for the nation’s unemployed, discussions about how compensation may fluctuate this year remain inconsequential. And for small businesses that have been doing their best to absorb rising costs without laying people off or shutting down, the idea of giving raises this year is likely going to be a moot point. But for middle management, executive leadership, and HR personnel at mid-sized to large companies, the question of what to expect in the way of raises remains critical to business planning.

So, what should you plan for a raise this year?

Topics: Recruiting Economic Trends Hiring Planning Staffing Financial Projections HR Budgeting Forecasting Expenses Salaries

Mastering the Budget Reforecasting Process

Budgeting and strategic forecasting creates a business roadmap to maintain stability and achieve growth. However, for forecasting to be accurate it needs to be modified when significant changes occur either internally or externally. This is especially important to consider this year, as supply chain disruptions and changing business regulations have drastically changed corporate outlooks across the country.

If you understand now that there is a high likelihood of needing to undergo reforecasting next year, you will be better equipped to do so when the time comes. Kory Wagner explains, “Expecting your assumptions to last through an entire year is at best naïve and at worst detrimental to your business. Incorporating reforecasting into your regular budget process, as needed, will keep you on track and help you roll with the punches.”

Some companies are reforecasting-averse, so they shorten their budgeting cycles from annual or semi-annual to quarterly or monthly to reduce their chances of needing to do so. But if 2020 has taught us anything it is that every company should be prepared to reforecast as needed because it could become a necessity at any time.

So, this year as you finalize budgets and forecasts, take the approach of “planning to re-plan.”

Topics: Data Analysis Financial Projections Budgeting Forecasting Strategy

Financial Projections for Startups – A How-To Guide

Financial projections are a critical component of a sound business plan. These projections (or “financial forecasts”) are used externally to obtain funding as well as internally to create a strategic growth roadmap with key milestones.

At the core of these projections are logical assumptions for revenue, COGS (cost of goods sold), SG&A (sales, general, and administrative) expenses, capital investments, and cash flow that serve as building blocks for the final figures that result. Because your financial projections rely on these pillars, it is crucial to find a balance with these inputs. Being too conservative or too aggressive with your assumptions will skew the resulting projections, damaging their overall credibility. The goal is to inspire confidence externally as well as internally while maintaining high ethical standards, which requires a balanced approach toward creating assumptions for financial projections.

Use existing financial information, even if it is limited by the newness of your business, to justify these assumptions and inform your financial forecasting process. Your resulting financial projections should include a P&L statement, cash flow statement, balance sheet, capitalization table, and strategic investment plan.

Topics: Funding Planning Financial Projections Financial Reports Forecasting Financing

What if Tomorrow is Not Like Today? Part II: Preparing for Disasters at Work

Most of us believe we are prepared for the everyday kind of disaster at work:  We carry extra cash, safety pins, and a cell phone.  We keep a granola bar (or five) in our desk.  In Seattle, we never, ever, let the coffee pot run out. But while all these things are good (especially the coffee pot), most of us never think about what we would do if a true disaster struck during the time we are at work -- the place/s where we spend more waking hours than anywhere else.   

Let's take the case of an earthquake, since that's our most likely Puget Sound area disaster, and the basic things to prepare for if one occurs during our workday apply to many other scenarios as well.  

Topics: Planning Financial Projections Forecasting

Predicting the Future - What if Tomorrow is Not Like Today? Part I

Recent sad news about the wildfires disaster in California which has destroyed homes, businesses and caused so many deaths is a reminder for us again to consider the future.

…up to 40% of businesses hit by natural or human-caused disasters never re-open.”

According to FEMA, the Federal Emergency Management Association, up to 40% of businesses hit by natural or human-caused disasters never re-open.  They close because their normal processes are overwhelmed by loss:  loss of data, inventory, space, personnel, or all of the above.

Topics: Financial Projections Forecasting

How a CFO Will Prepare Your Business for Unexpected Events

When business disruptions occur, it can be expensive. Most business owners and CEOs have a model for success in mind, but what about the other side of the coin? Failing to prepare or put contingencies in place for unexpected events can turn a potential blip into a catastrophe.

Increasingly, business owners and leaders are leaning more on their financial teams to help prepare the company for uncertainty. Specifically, the business's CFO is taking on a broader role that includes making sure that your firm will be able to weather unexpected events.

Topics: CFO Planning Financial Projections Forecasting