Financial projections are the forecast of your upcoming expenses and revenue. You should develop them for the short-term, the mid-term, and they are critical to keeping your business on track. For your short-term first-year projection, you will outline your projections for each month. Then, you can outline the next three years by the year. Take a look at the three types of financial statements that will make up your financial projections.
Income Statement
The first element of your financial projection is your income statement. It will show your revenues, expenses, and profit for the time period you are projecting. It includes the money you take in for your goods and services, all of the costs, your total income, and your income taxes. You can take your revenue and subtract your expenses to determine your net income, which is what you have before you pay taxes. Then, you will pay taxes based on this number.Â
Cash Flow Projection
The next element is your cash flow projection. One of the important functions of this projection is to show banks or lenders that you have the ability to pay back a loan. It will include your cash revenues, which is the sales over a certain period of time. Next, it includes your cash expenditures throughout the same time period. You need to reconcile the two by subtracting the cash disbursements from the revenue. If you have a balance, you will start the next time period with this money. Make sure that you are realistic about these projections.
Balance Sheet
The final element of financial projections is the balance sheet. It is an overview of your business’ net worth at a specific time. It will include a summary of your financial data split into three different categories: assets, liabilities, and equity. Your assets are tangible items that your company owns. Your liabilities include any debts you owe to creditors, and the equity is the difference you get when you subtract the liabilities from the assets. The most important thing to remember is to be realistic about the expected revenue. It is easy to overestimate or underestimate it, and you want to take time to make sure that your numbers are realistic.