Making Financial Projections in Your Business Plan

Whether you are seeking funding from investors or you are compiling a business plan to serve as a blueprint for managing and monitoring your business, it is imperative that you make financial projections. Such financial projections will attract investors and serve as a guide to future business decisions.

Financial projections can be intimidating. However, they are less a matter of mathematical aptitude and more a matter of your knowledge of your business, the industry, and the market.

To make projections, such as sales forecasts, break down sales into manageable parts. For example, first outline the products and services you offer, the unit price for each item, the anticipated inventory, projected sales per item for each day, week, month, etc. You will base these numbers on your experience in the industry and research. Finally, make an educated guess regarding total sales. Using the same procedure, calculate your expenses or startup costs if launching a new business. Use a template or sample as a guide.

Estimates, such as sales, are not simply based on knowing the number of people in your demographic region and making an educated guess as to how many will opt to use your product or services in a given time frame. Sales are projected in line with your marketing strategy. For example, if part of your plan is to do a bi-monthly direct mailing to 10,000 people in your demographic group, and you estimate that a 1 percent response to that mailing will result in sales at your store, then you are estimating that 100 people will make a purchase in two months, or 50 per month. If the average sales item in your store is $200, you are looking at an estimated $10,000 per month using this means of marketing. Of course, you may choose to take a conservative approach and estimate $7,500.

Break down each method of marketing used to attract customers. In the end, review the plan to make sure everything is included.

Finally:

Ask other people in the industry, whom you trust, to review the plan.

Match your financial forecasts against that of sample plans.

Recheck all numbers and calculations.

Look for any risks that could impinge upon your plan.

Include your final financial forecasts in your business plan.