The value of realistic financial projections before starting a business

What are the financial projections

Financial projections for businesses are part of an overall business plan. It determines your steps to keep your business viable and profitable. It consists of assumptions such as where you will get your money from and where you will spend it.

Of course, it’s crucial to understand that financial projections differ from accounting. It includes many other calculations and predictions based on previous and possible future actions. Financial planning is a calculation of your previous income and expenses, cash flow control and operational expenses. The main processes for creating a financial projection are analysis and calculation.

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Purpose of financial projections

There are two main financial planning goals:

1. Showing your business plan to a potential investor or lender. If your assumptions are too vague or approximate, there is a slim chance of Get money from any conscientious investor.
2. Your benefit. A financial plan will give you the ability to predict, control and track your goals. If the predictions are good, it is much easier to grow your business and bring you a stable high income.

Financial projections aim to understand what will happen with the business.

Importance of being realistic

Many startups make the same mistake when building a business plan . They neglect to make a well-founded and realistic financial plan. Of course, creating ideas, values, strategies and a marketing plan are more interesting and even exciting processes. But without a good fundamental plan, the real material support of any idea will be dissipated.

Potential lenders reviewing the business plan always pay considerable attention to its financial section. If you neglect the realistic context and create your plans accordingly, you can get yourself into a difficult situation. A lender will realize that your understanding of the financial possibilities is poor. Or even worse, an investor may think you don’t care where their money will go.

Thus, your chances of attracting the interest of other investors may be low, because usually their circle of communication is very tight. Show responsibility and understanding to protect your reputation among future investors.

How to Create a Realistic Financial Projection

There are several things to keep in mind Compose a clear financial plan. The first is to bring a command into your head and thoughts. Then put them on paper. Many inexperienced entrepreneurs get so excited about their ideas that they start to get the math wrong. They choose the best scenario of actions and see it as the only possible way.

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They maximize expected income and minimize planned expenses. This type of behavior is totally wrong and destructive, because it has no basis in reality. A clear understanding of worst-case, best-case, and best-case calculations gives you confidence in your company’s actions. Also, it makes the plan work in any case and in any situation.

In conclusion

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