By Brittany Fisher
Financial projections are critical tools for any executive or entrepreneur who wants to make smart business decisions. Like mathematical crystal balls, financial projections can:
- Show you how much money your business may make
- Show you how much money your business may spend
- Help you decide where to steer your business for maximum success in the future
Of course, not all financial projections are totally accurate, and some projections are more useful than others.
Compiling the Right Financial Statements
The accuracy and value of a financial projection are contingent on the data you feed into it. To that end, you need to make sure you give it the right information.
Ideally, you’ll keep detailed accounting history for your business:
- Cash flow
- Product performance
- Marketing performance metrics like conversion rate
All of these financial statements should be collected and recorded for as long as possible. The more financial history you have to draw on, the more accurate any future projections will likely be.
If you want to make sure you gather and record the right financial statements, you might consider sharpening your financial skills with an online MBA degree. Going back to school for an online MBA will give you the financial skills and knowledge you need to thrive and make even more accurate projections in the future. Plus, online degrees are very flexible and will allow you to run your business and complete your school at the same time.
Creating the Right Financial Projections
Next, you need to know which financial projections to create and use. Some of the best to use for general business practices and predictions include:
- Balance sheet projections, which include various financial metrics for your enterprise, like its liabilities, listing assets, and equity balances
- Income statement projections, which can project your future income by looking at your current income streams (usually from income statements)
- Cash flow projections, which can predict cash flow in the future by looking at current or past cash flow
- Expense projections, which predict how much money your business will likely spend to maintain its current operational status and profitability
- Sales projections, which can show you how much in sales your business will likely make in the future. Note that sales are not the same as revenue or profit
Using the Right Tools
Most entrepreneurs and business owners use financial projection, or Accounting Software, which is much simpler than learning and leveraging equations yourself. The best financial projection software will be:
- Easy to use
- Have great reviews
- Provide you with clear conclusions
Take some time researching different types of financial projection software so you make the right choice and don’t spend your money unwisely.
Hiring the Right Help
If you have a little extra budget to spare, consider hiring a competent professional to provide additional insight that can help you navigate tight financial circumstances.
Projections Can Chart a Course to Success
Whether you make financial projections yourself or rely on an expert, the right projections can give you the insights you need to make smart calls for the health of your business. For instance, they can tell you whether it’s wise to expand, whether you should eliminate certain products, and whether your business is performing healthily enough to make an initial public offering on the stock market.
Trust in financial projections and your business will go far!