A Successful Business Financial Projection
Can Be the Key to Securing Financing by
A business seeking capital can’t afford to
underestimate the importance of business financial
projections. A business financial projection
is simply forecasting your sales and revenue
to the lender. This information is important
because it is a key indicator to your ability
to repay a loan.
If you are unsure about financial forecasting
and how it relates to your business it is
best to hire someone who does know. Most lenders
will want to see a three or five year projection.
There are 14 different items to include and
fully support in your financial projections.
With these different items it is best to give
a month-by-month breakdown for the first year,
a quarterly breakdown for the next two years,
and an annual breakdown for the final two
years you are projecting.
The different items to include in your projections
are; sales revenue estimates, administrative
costs, production costs, sales costs, capital
expenditures, gross margin by product line,
sales increase by product line, interest rates
on debts, income tax rate, accounts receivable
collection plan, accounts payable schedule,
inventory turnover, depreciation schedules,
and the usefulness or depreciation of assets.
The income projection enables the owner/manager
to develop a preview of the amount of income
generated each month and for the business
year, based on industry supportable predictions
of monthly levels of sales, costs, and expenses.
When determining the total net sales you will
be finding out how many units of products
and services you expect to sell at the prices
you are projecting. Make sure to think of
what returns, allowances, and markdowns can
be expected. The sales costs needs to be calculated
for all products and services used. Ensure
that when determining the costs of sale that
you don’t forget anything such as commission
paid to sales representatives, transportation
costs, or any direct labor costs.
For the gross profit you would subtract the
total cost of sale from the total net sales.
To get your gross profit margin you will divide
the gross profits from the total net sales.
This will be expressed as a percentage of
total sales or revenues.
When formulating your business financial projections
there are five items that will ruin the accuracy
of your projections, and hurt your chances
of being approved for business financing.
The first one is wishful thinking or being
over-optimistic about your sales potential.
Ask yourself: “Is it possible to achieve the
sales levels you’re forecasting?”. A good
example is that a sales team can only visit
a certain number of customers each week or
a factory can only manufacture a given amount
of products on each shift. Make sure to keep
your projections realistic and even more important
to be based on supportable evidence. It is
imperative to also make sure that your sales
assumptions are linked directly to your sales
forecast or your information will contradict
itself. Most lenders are “by the numbers”,
so if your numbers don’t add up, you will
get declined. A good example of this is to
say that you expect increased sales in a market
that is declining. That just does not add
Another thing not to do when projecting your
business finances is to spend a lot of time
refining the forecast. Try to avoid tinkering
with the target numbers once they are set.
Many business owners neglect to ask the opinions
of the sales people who know the buyer’s intentions
about what they think the projected sales
should be. It is important to make sure your
sales team agrees on any sales targets that
will be set. One other fatal mistake made
by business owners when working on financial
projections is not getting feedback on the
projections from an accountant.
Corey Pierce is the CEO of BusinessFinance.com
a business capital search engine with the
funding criteria of 4,000+ sources for business
capital. Visit www.businessfinance.com
to search the funding directory for free.
Pierce is also the creator of the Business
Finance Coach found at www.businessfinancecoach.com.
Article Source: ArticleRich.com