The CFO'S Perspective

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.

Lenders and investors will always ask for financial statements as part of the application process. When applying for funding, you will be required to provide both historical financial data and projected financial figures. Banks and investors will then analyze where the company has been and where it appears to be going to determine if its trajectory fits within acceptable risk parameters.

For many owners of growing companies, the choice of a bank is a crucial decision.  A solid relationship with a bank can make or break a company.  Banks provide relatively cheap capital to fund expansion as well as the everyday transactional and payment services that enable everyday operations. 

A poor relationship with your bank can hinder growth plans and even put you out of business.  Still, many business owners simply stumble into doing business with a bank because of convenience or with the mistaken assumption that all banks are all the same.  A wise business owner puts effort into developing and maintaining a relationship with their bank, just like they do with key customers and suppliers, to ensure their long term success.