How to create financial projections?

The challenge for any entrepreneur is creating financial projections when your business is not yet running on its own. Therefore, you do not have any historical data to give you a better sense for future projections. However, with a little market and industry research, you’ll actually have a lot of data to work with to help you create realistic financial projections. Here are some things to consider.

Use your own industry experience

You may have worked at a similar business within the same industry before striking out on your own. In this case, you will probably have an idea of what realistic financial projections look like, how long it will take to scale, what growth rate is ideal, and what profit margins are normal within your industry.

Work with an accountant who knows your industry

An accountant will know what type of expenses, sales, and profits a well-run business in your industry can expect and will be able to help you come up with realistic financial projections.

Do market research to develop a sustainable business model

Industry associations and publications can help you compile accurate financial data.

Look at publicly available information such as Census.gov to better understand your target audience. Find assistance from small business advisors and mentors, through SCORE or your local Small Business Development Center (SBDC).

You can also find industry data at BizStats and BizMiner. And you can find sample financial projections at BPlans.

Be optimistic but realistic

Investors and lenders know that your financial projections aren’t set in stone, but you do need to make sure they are realistic. Lending institutions and investors have seen too many entrepreneurs who are overly optimistic about their own businesses.

As a small business owner, your figures will be scrutinized by banks and investors to ensure the business is legitimate and has the potential to grow.

Finally, understand the types of financing you’re seeking with your financial projections. Investors are more willing to take risks, as long as you can prove your proposal is backed by hard data. Lenders, however, are more cautious. They don’t need your business to be the next Google so long as you are able to pay back the loan payments on time.

By carefully gathering information and striking a balance between optimism and realism, you can create financial projections that not only guide your business but can help you obtain the right type of financing as you grow.