Financial Planning & Funding: Lesson 5
Developing Financial Projections
Sarah Mattson teaches you how to create financial projections for your business.
Test Your Knowledge
To receive credit for taking this course through TSBDC, watch the video and take the quiz that will appear below to demonstrate your knowledge.
0 of 3 Questions completed
You have already completed the quiz before. Hence you can not start it again.
Quiz is loading...
You must sign in or sign up to start the quiz.
You must first complete the following:
0 of 3 Questions answered correctly
Time has elapsed
You have reached 0 of 0 point(s), (0)
Earned Point(s): 0 of 0, (0)
0 Essay(s) Pending (Possible Point(s): 0)
What are the three main financial documents that one should put together for their financial projections?CorrectIncorrect
What is the main purpose of a profit and loss statement?CorrectIncorrect
What is the main purpose of a statement of cash flows?CorrectIncorrect
Video Lesson Topics
- Why Do You Need Financial Projections?
There are several reasons you need financial projections:
- You will need to determine your need for funding. Do you have enough money to get your business started or will you need a line of credit?
- It will help you gauge the profitability or loss of your business. Is your business financially feasible, and is it on the path for growth or loss in the next year?
- It will force you to research anticipated expenses. How much will that point-of-sales system cost, or how much will rent cost in the next year?
- It will help you make strategic plans for your business. When is the right time to hire that extra person or purchase that extra piece of equipment?
- Profit and Loss Statement
The profit and loss statement is also known as an income statement. Your profit and loss statement shows your projected revenue minus cost of goods sold minus expenses to determine if you have a net income or a net loss. This is often done month-by-month or for the entire year. First, you will want to work on your business’ revenue; how much money in sales do you expect to make? You will need to determine if you have multiple revenue streams. For example, if you are a restaurant, your revenue streams may be food sales, catering, and merchandise sales. To project your revenue, you want to keep it as simple as possible. After you have calculated and projected your revenue, you will then work on cost of goods sold. The cost of goods is the direct cost related to the production of your product or service. Most of the time, the cost of goods sold can be calculated on a percentage of the revenue stream. For example, in a restaurant, food costs can be estimated as about 30% of your revenue stream. Next, you will want to estimate your expenses; this is going to be your overhead costs (rent, labor, credit card fees). Once you have done all of this work, your profit and loss will be able to show you if you have a projected income or net loss.
- Statement of Cash Flows
The second financial document that you will want to work on in your financial projections is your statement of cash flows. The statement of cash flows takes your net profit or net loss from your profit and loss report, but it also applies any cash that you had to begin with and any other additional expenses. The statement of cash flows is extremely important because it helps you determine if you have enough cash available to float month by month.
- Balance Sheet
The final financial statement is the balance sheet. The balance sheet tells you the balances left on any assets and liabilities that the business holds or is planning to hold. Assets include vehicles, equipment, inventory, and bank balances. The balance sheet also calculates the depreciation year after year on the assets. This way, you can always look at the balance sheet and see what the actual value left on the assets are. The balance sheet also tells you your liabilities or projected liabilities. Liabilities are loan balances or credit card balances, for example. Business owners and lenders can use the balance sheet to help determine if taking out more debt is a healthy financial decision for the business.
Topics & Lessons
Each Below Topic Contains a Video Lesson and Helpful Downloadable Information
Funding Options for Existing/Established Businesses
How to Prepare for Your First Bank Meeting
How Much do I Need to Start my Business?
Developing Financial Projections
Accepting Payments and Credit Card Processing
Funding Options for Starting Your Business
SBA 7A Small Business Loan Program
Want to learn more about how this topic relates to your business?
Schedule a meeting with one of our consultants! All counseling sessions offered by the TSBDC are no-cost and provided by our staff of professional business consultants.