It may seem like it would be easier to keep your financial planning “in your head” or have a limited outline for your business’s financials throughout the year. However, there are a lot of great reasons to start any business with official financial projections. Take a look at some of the most important ones:
1. They evaluate your business's viability.
Taking the time to thoroughly calculate where your business is starting from helps you plan for the future. What seems inexpensive in theory may turn out differently after crunching the numbers, and evaluating all your options may show that some expenses will be lower than expected. Perhaps most importantly, financial projections
help you determine if your business will generate enough income to meet all your anticipated expenses, including paying you as the owner or owner-operator (i.e. the viability of the business).
2. They help you plan and prepare you for the future.
Without detailed financial projections, it’s hard to evaluate how your business will operate long-term. With projections, though, not only can you see a clear financial vision for your business in the years ahead, but you will be able to address issues as they arise. Typically, projections are generated for five-year terms using annual income and expense numbers, but it is also common to do a one-year projection with income and expense numbers broken down by month. With a detailed understanding of your current and future position, it will be much easier to smooth over eventual bumps in the financial road.
3. They help you establish achievable goals.
Instead of estimating where your business should be at any given time, you can know precisely as outlined in your projections. More than basic planning, this will help you establish and reach milestones throughout the life of your business, especially in the beginning stages, and they make it clear if adjustments need to be made to improve the profitability of your business to meet your financial goals.
4. They help attract investors & give lenders confidence to offer you a loan.
Securing investment is vital for many business ventures, and most investors will require objective, detailed evaluations of their future investments. Accurate financial projections show potential investors that your business will return their time and effort, and it is an endorsement for you, too. In addition to investors, banks and other non-traditional lenders, like NewTown Macon, want thorough projections to ensure you can meet all your business expenses and make your loan payments with ease.
5. They help you cut costs.
You have to find problems to solve them, and financial projections do just that: it’s a lot easier to see where your money is going when it’s all laid out in front of you. With financial projections, you can see current high-cost issues and anticipate future ones, allowing you to accommodate and work around all of your expenses, and, ultimately, to improve your profits.
As you can see, financial projections are essential to any business venture. To start calculating your own projections, checkout NewTown Macon's templates for financial projections.