If you have or are thinking of starting a small business, writing a business plan is an important part of becoming and staying successful. Part of that business plan should include financial projections so you know where you’re going on your path to success.
When you start the financial projection part of your business plan, you have to know where you’ve been before you can know where you’re going. If you are currently a business owner, that is easy enough to gather. So what should you use to construct this history? Your company’s income statements, balance sheets, and cash flow statements. If you haven’t had them prepared by an accountant, most financial software will let you run reports giving you each of those, gather them for either each year you have been in business or for about the last three to five years. Each of these will give you a good overview of your business. You will be able to see where you have made good decisions and bad ones.
Now that you know where you have been, planning where you want to go is next. In many instances, your business plan is being used to get start up loans, entice investors or get funding for a new project. Banks or investors will want to see where you are planning to go and what you will need to get there. This will tell them that you will be able to repay them. You will use some of the same documents: income statements, balance sheets and cash flow statements. They will just be forecasts, not reports. Make sure that you break your projections up by quarters, not just yearly.
Make sure you explain your forecast. Use words or graphs to show where you plan on going, and how the current markets will help you get there.
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