Business Plan Financial Projections

Financial projections are forecasted analyses of your business' future that include income statements, balance sheets and cash flow statements.

Business Plan Financial Projections

Financial projections are forecasted analyses of your business’ future that include income statements, balance sheets and cash flow statements. We have found them to be a crucial part of your business plan for the following reasons:

1. They can help prove or disprove the viability of your business idea. For example, if your initial projections show your company will never make a sizable profit, your venture might not be feasible. Or, in such a case, you might figure out ways to raise prices, enter new markets, or streamline operations to make it profitable.

2. Financial projections give investors and lenders an idea of how well your business is likely to do in the future. They can give lenders the confidence that you’ll be able to comfortably repay their loan with interest. And for equity investors, your projections can give them faith that you’ll earn them a solid return on investment. In both cases, your projections can help you secure the funding you need to launch or grow your business.

3. Financial projections help you track your progress over time and ensure your business is on track to meet its goals. For example, if your financial projections show you should generate R500,000 in sales during the year, but you are not on track to accomplish that, you’ll know you need to take corrective action to achieve your goal.

Below you’ll learn more about the key components of financial projections and how to complete and include them in your business plan.

If you’d like to quickly and easily complete your business plan and financial projections, download our business plan template and complete your plan and financial model in hours<--

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes. There are three main financial statements that you will need to include in your business plan financial projections:

1. Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

Sample Income Statement

		FY 1	FY 2	FY 3	FY 4	FY 5
Revenues
	Total Revenues	R360,000	R793,728	R875,006	R964,606	R1,063,382

Expenses & Costs

	Cost of goods sold	R64,800	R142,871	R157,501	R173,629	R191,409
	Lease	R50,000	R51,250	R52,531	R53,845	R55,191
	Marketing	R10,000	R8,000	R8,000	R8,000	R8,000
	Salaries	R157,015	R214,030	R235,968	R247,766	R260,155
	Initial expenditure	R10,000	R0	R0	R0	R0

	Total Expenses & Costs	R291,815	R416,151	R454,000	R483,240	R514,754

EBITDA		R68,185	R377,577	R421,005	R481,366	R548,628
	Depreciation	R27,160	R27,160	R27,160	R27,160	R27,160
EBIT		R41,025	R350,417	R393,845	R454,206	R521,468
	Interest	R23,462	R20,529	R17,596	R14,664	R11,731
PRETAX INCOME		R17,563	R329,888	R376,249	R439,543	R509,737
	Net Operating Loss	R0	R0	R0	R0	R0
	Use of Net Operating Loss	R0	R0	R0	R0	R0
	Taxable Income	R17,563	R329,888	R376,249	R439,543	R509,737
	Income Tax Expense	R6,147	R115,461	R131,687	R153,840	R178,408
NET INCOME		R11,416	R214,427	R244,562	R285,703	R331,329

Easily complete your business plan and financial projections!

Download our business plan template and complete your plan and financial model in just hours<--

2. Cash Flow Statement & Projection

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

Sample Cash Flow Statements

		FY 1	FY 2	FY 3	FY 4	FY 5
CASH FLOW FROM OPERATIONS
	Net Income (Loss)	R11,416	R214,427	R244,562	R285,703	R331,329
	Change in working capital	(R19,200)	(R1,966)	(R2,167)	(R2,389)	(R2,634)
	Depreciation	R27,160	R27,160	R27,160	R27,160	R27,160
	Net Cash Flow from Operations	R19,376	R239,621	R269,554	R310,473	R355,855

CASH FLOW FROM INVESTMENTS
	Investment	(R180,950)	R0	R0	R0	R0
	Net Cash Flow from Investments	(R180,950)	R0	R0	R0	R0

CASH FLOW FROM FINANCING
	Cash from equity	R0	R0	R0	R0	R0
	Cash from debt	R315,831	(R45,119)	(R45,119)	(R45,119)	(R45,119)
	Net Cash Flow from Financing	R315,831	(R45,119)	(R45,119)	(R45,119)	(R45,119)

	Net Cash Flow	R154,257	R194,502	R224,436	R265,355	R310,736
	Cash at Beginning of Period	R0	R154,257	R348,760	R573,195	R838,550
	Cash at End of Period	R154,257	R348,760	R573,195	R838,550	R1,149,286

If you’d like to quickly and easily complete your business plan and financial projections, download our business plan template and complete your plan and financial model in hours <--

3. Balance Sheet Projection

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

Sample Balance Sheet

		FY 1	FY 2	FY 3	FY 4	FY 5
ASSETS
	Cash	R154,257	R348,760	R573,195	R838,550	R1,149,286
	Accounts receivable	R0	R0	R0	R0	R0
	Inventory	R30,000	R33,072	R36,459	R40,192	R44,308
	Total Current Assets	R184,257	R381,832	R609,654	R878,742	R1,193,594

	Fixed assets	R180,950	R180,950	R180,950	R180,950	R180,950
	Depreciation	R27,160	R54,320	R81,480	R108,640	R135,800
	Net fixed assets	R153,790	R126,630	R99,470	R72,310	R45,150

TOTAL ASSETS		R338,047	R508,462	R709,124	R951,052	R1,238,744

LIABILITIES & EQUITY
	Debt	R315,831	R270,713	R225,594	R180,475	R135,356
	Accounts payable	R10,800	R11,906	R13,125	R14,469	R15,951
	Total Liability	R326,631	R282,618	R238,719	R194,944	R151,307

	Share Capital	R0	R0	R0	R0	R0
	Retained earnings	R11,416	R225,843	R470,405	R756,108	R1,087,437
	Total Equity	R11,416	R225,843	R470,405	R756,108	R1,087,437

TOTAL LIABILITIES & EQUITY		R338,047	R508,462	R709,124	R951,052	R1,238,744

How to Create Financial Projections

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.

Cost Assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

· Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

It is important to track your company’s capital expenditures over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

· Funding

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

It is important to track your company’s funding sources over time to ensure that it has a healthy mix of financing options. A healthy balance is necessary for a successful business.

· Tax

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

It is important to track your company’s tax liability over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

· Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

It is important to track your company’s debt levels and asset values over time to ensure that they are in line with your projections.

Easily complete your business plan and financial projections!

Download our business plan template and complete your plan and financial model in just hours<--

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have R100,000 in revenue, your high estimate might be R120,000 and your low estimate might be R80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

Conduct a Ratio Analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

Gross margin ratio
Operating margin ratio
Return on assets (ROA)
Return on equity (ROE)

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

Create Multi-Year Financial Projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.If you’d like to quickly and easily complete your business plan and financial projections, download our business plan template and complete your plan and financial model in hours<--