Questions for the Beginner of Building Projections

Information may not be reliable

At any given time, all six steps must synchronize well with each other, like music is conducted in a symphony.

Isn’t it just accounting?

It is like predicting your own health and planning to live by it. Your business health chart, in other words. In summary, your projections are what you plan to have happen, and your accounting records what actually did happen.

Is it all data then?

Most projections don’t involve a lot of data crunching. Not at least, in the beginning. Most projections are built before companies have generated a large amount of sales. 

Are projections built brick by brick? 

There is no one single way to create projections. There is no particular sequence. Parts of your future comprise the full forecast.

How will I project sales?

Open the spreadsheet and start feeding in data month by month (or by growth percentage), and then, year by year. 

How much will I have to spend?

Draw a line-literally, between your fixed costs and variable costs. Fixed costs are rent, salaries, lease, insurance etc.,

Where is the cash?

Most new businesses don’t have the amount of cash they need. You might need credit, as well. 

Where is my income?

Your net profit is your net income. You arrive at your margin by deducting cost of sales from your actual sales.

How much is my business worth?

When you project your balance sheet, you will have your assets compared to your liabilities. The balance between the two is how much negative or positive equity in your company.

When do I break even?

Most businesses hope to break even after three years or less. That means there should be enough financial strength to keep the operation active and running.

In summary, most companies build projections to obtain working capital. This should not be the end. The projections, when done properly should be used monthly or quarterly to carefully monitor your business and to identify areas of potential improvement.