Does Your Business Build Financial Projections?
Financial projections are an essential management tool for businesses of all sizes helping business owners and leaders proactively monitor and evaluate business financial health and outlook while performing disaster checks.
Projections can help highlight potential peaks and valleys, trouble or hot spots, and identify significant emerging patterns which can be vital to business planning and informed decision-making.
For large businesses or businesses with complex structures, software solutions may help to build complex financial projections including projections that can be used for analysis on an individual and consolidated entity basis (ex: parent/holding company with subsidiaries).
But what if you’re a small business with limited resources?
You probably don’t want to invest in expensive software solutions to build financial projections.
The reality is you don’t need expensive software solutions for financial projections ... especially if you’re a small business.
Excel or any equivalent spreadsheet software application will suffice.
Hopefully, you’ve avoided taking a makeshift approach to managing your business accounting and finance needs and have a good accounting or finance system/solution/platform in place (ex: QuickBooks Enterprise) as you’ll need to access financial reports and history to help build different financial projections.
Building financial projections isn’t hard but it does take time to compile and analyze the requisite information to build working base projections.
Once you have base projections, it’s a matter of updating and refining those projections as more information becomes available so you have the best information possible for planning and decision-making.
If your business is just getting off the ground, building financial projections may be a bit more challenging as you won’t have any existing history to work with, so you’ll want to focus on booked revenue, anticipated expenses, and avoid any “blue sky” forecasting.
As you review your monthly performance (actuals vs projected) you’ll gain insights and experience and be able to further refine your process and improve your financial projections.