by Gloria Martinez

You have probably heard the expression, “Garbage in. Garbage out.” In programmer speak, this means that if you feed bad data into a computer, you will get bad data out of it. This is also true of business decisions. If you base your plans on bad information, then you are probably going to get bad results. Accurate financial projections help you make sound business choices, and Elijah Medge is here to guide you through the process.

Why Your Business Needs Realistic Financial Projections

Realistic financial projections help you make data-driven decisions about funding, budgeting, operations and other factors that affect the future of your business. Accurate forecasts can help you decide whether you need to increase or decrease staff if you should start a new project, what inventory to keep on hand and how much raw materials to order.

Accurate projections can also help you estimate your annual tax burden. This is important because most states require businesses to file annual reports and pay estimated taxes to remain in good standing. Failing to comply with your state’s regulations could result in penalties, fees or even the loss of your right to do business in the state.

How To Create Financial Projections

First, create your sales projection. The basis for this projection is your past sales data. However, you also need to factor in current conditions that could affect future sales, such as the state of the economy, inflation and industry trends.

Then, create an expense projection. Your past spending is the basis for this projection. You may want to include an amount for one-time expenses that can be difficult to predict. Now you can start on a balance sheet projection. If you are using accounting software, you can probably generate this report there. Your balance sheet lists your assets, equity balances and liabilities.

Next up is your income statement projection. Your income statement shows your net income after accounting for taxes, cost of goods sold and other expenses. You can use your current income statement as the basis for this projection.

The final step is to create your cash flow projection based on your current cash flow statement. This gives you an idea of when money is moving into and out of your business.

Software You Can Use To Make the Process Easier

If you aren’t already familiar with this easy to use bookkeeping system, you should be. In addition to streamlining your invoicing process, it can do wonders for your record-keeping, allowing you to cultivate deeper insights into your business.

If you are already using accounting software to track your financial transactions, that software can be used to generate many of the statements you need for your financial projections. You can also purchase software specifically for creating financial projections. Most of these work with popular accounting software packages so that you can import the data you are already tracking.

Ways You Can Sharpen Your Skillset

Creating and effectively utilizing realistic business projections requires a specific skill set that not every business owner may have. If you would like to improve your skillset, consider going back to school to get a Master of Business Administration or an online degree in accounting.  These degrees can help you learn the financial skills you need to create and interpret financial projections and make decisions to improve the health of your business. Going to school online provides you with the flexibility you need to finish school while also running your business and taking care of your family.

According to statistics, half of all small businesses fail within the first five years of opening. The better your financial projections are, the less likely your business will be one of them.

Elijah Medge is the owner and manager of several outsourced direct marketing companies. He is an ambitious and dedicated businessman who enjoys the entrepreneurial journey. He’d love to hear from you!


Photo via Pexels