The Sooner You Know Your Financial Projections The Better
Do you want your business to be successful a year from now, 5 years from now, or even longer? Are you thinking about expanding your business by finding investors? If you answered yes to one or both of those questions, it’s essential that you create realistic financial projections for your business. Without these projections, or with unrealistic projections, neither investors nor lending institutions will take you seriously — let alone provide funding.
Even if investors aren’t in your plans, creating realistic financial projections is extremely helpful in your longevity as a successful business. Read on to ensure you’re on the path to success.
The Ins and Outs of Financial Projections
Whether you’re managing your bookkeeping yourself or you’ve got a bookkeeper or an accountant, understanding the ins and outs of financial projections and what it means for your business is essential. No, you don’t have to know everything, but understanding the basics will help you through conversations with potential investors and even your current or future accountant or bookkeeper.
As The Startup Garage explains, “Your financial projections give you an idea of how your business should be doing at any moment in time. It also shows your potential investors how you will be profitable over time.” Businesses that succeed plan for the future, and they are realistic about how things are currently and where they are heading.
But, don’t stress. You can keep your financial projections simple with some strategic spreadsheet usage or use software to help make sense of the numbers. Here are a few common spreadsheet types to get you started: equipment list, balance sheet, profit and loss statement, cash flow projections, sources and uses of funds. While not every business needs all of these statements, these are a good starting point.
Software tools can make it much easier, like PocketSmith, ProjectionHub, or Adaptive Planning. Whichever method you choose, taking the time to understand where your company is at and where it’s headed will help you plan for a successful future, with or without investors.
Inventory Management
A key piece of your financial projections includes inventory management. This means tracking inventory from the ground up to the point of sale. The ultimate goal for your inventory management process is to have the right products in the right place at the right time.
Having a working understanding of your inventory management is one of the most critical pieces to your financial projections. In addition, these types of projections can help your business reduce inventory costs and streamline the whole supply chain process.
It’s not unusual for small businesses to keep track of stock manually and determine the reorder points and quantities in a spreadsheet. Larger businesses will use specialized enterprise resource planning (ERP) software.
In addition to using software for creating and managing your financial projections, automated inventory management software keeps your inventory organized with automated order management and in-store tools like barcode scanners, low-stock alerts, and fulfilling orders from multiple storage warehouses.
The data from such a system can prove invaluable. Because you have easy access to your current inventory and detailed reporting of your inventory history, it makes it easier to mesh realistic inventory projections with your financial projections. This means avoiding costly mistakes, like stocking an excess of items or running out of hot products and thereby missing sales.
Creating realistic financial projections, including detailed inventory management data, sets your business apart and prepares you for a long, prosperous future. In addition, access to software tools that automate processes and provide detailed reporting will make your financial projections easier to manage now and for years to come.
For advice that can help your business do better, connect with The Virtual Consulting Firm.
Photo: Pexels
This article was written by a guest writer, Vanessa Holwell.
Vanessa Holwell and her husband, Rick, created HiringSquad.net after losing their jobs during the financial crisis in 2008. The site is designed to be a forum for people to share advice on how to get hired, provide job search resources, and give you the tools you need to get the job you want.
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