As a small business owner, you are familiar with the quarterly and annual financial reports required for your company. However, you may be confused about financial projections. That’s why the BusinessProject is here to show you how to become a pro at understanding and creating these necessary documents.
What Are Financial Projections?
Financial projections forecast your company’s expenses and revenue for each month over the next year. In addition, some small business owners like to create another longer-term forecast for three to five years.
Why Are These Documents Important?
Projections are an essential part of the strategic planning process for your company’s health and growth. They help you create a realistic budget for the coming year and are useful to secure a loan or attract investors.
Financial projections also assist you in forecasting the amount of year-end taxes your company will owe. For your business to stay compliant and in good standing, your state may require you to file an annual report and pay taxes. Failure to do so could result in penalties or fees and losing your right to do business in your state.
What Statements Are Included?
Financial projections consist of three statements:
- Balance Sheet
How Do I Create the Documents?
The most accurate way to create your company’s projections is to analyze your historical data from your last few annual reports along with the reporting for this year.
To prepare your income statement, first look at your current financials to get an idea of what your sales should be like in the coming year. Then, subtract out what your expenses and taxes should be. Next, add any upcoming costs for planned growth activities as well. Finally, do some market research about the current state of your industry to either raise or lower your final projection.
Your company’s balance sheet projection lists your total estimated liabilities and assets for the coming year. Again, looking at your current year’s monthly balance totals helps you crunch these numbers.
You then use the information from your income statement and balance sheet to complete your cash flow projection by looking at the cash transactions for your business over the past year.
To further sharpen your business skills and create a healthier company, consider going back to school to earn your accounting degree. Online accounting courses help you increase your business understanding and ability to make accurate financial projections by teaching you about balance sheets and accounting processes in greater detail. You could also consider pursuing an MBA to give yourself an edge over the competition.
Where Can I Find Help for Completing These Documents?
Accounting software makes the financial reporting process much simpler and more accurate. For example, you can pull data from your regular monthly reports and enter it directly into your projection statements. The software enables you to get an overall view of your company’s annual finances at a glance to help you better estimate what the next year holds. This online bookkeeping tool is a great place to start!
You can also build a healthier company and boost your finance skills by furthering your education with an MBA degree. Doing an online degree program develops your business acumen while still giving you the flexibility to handle school with your work and family responsibilities.
Now that you understand the importance of financial projections for your company and the correct way to complete them, you can focus on mastering the skill. Using accounting software and furthering your education can help you become a pro at creating these documents.
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