5 tips to make a financial projection for your business
Before detailing some tips to take into account to make a financial projection of a startup company, it is first necessary to know why its execution is important.
Why is financial projection important?
The
mind of an entrepreneur is very restless. They continually think of ideas to
apply and improve the particularities of the business. The constant search for
innovation and creativity is an inseparable part of the personality of an entrepreneur.
But
making financial projections takes time away from the main objective of the
venture: generating more sales to obtain greater profits. However, financial
projections are also a key element to the success of a business.
Before
putting an idea into practice, it is essential to know the chances of success,
the marketing margins, the needs, if that idea will imply effective growth for
the company, etc.
But
there is a fundamental aspect that only financial projections will allow us to
analyze: the weaknesses that every company faces and the possibilities of
correcting them to achieve the established objectives.
Some tips for making a financial projection
The financial
projections for startup are particularly
important for smaller companies since they usually lack the necessary elements
or the knowledge to face periods of crisis.
Financial
projections must be made once the business model has been established and the
target audience, prices, marketing channels, costs, needs, etc., have been
determined.
In
times like these, in which the economy is so volatile and especially in
businesses that have just started, it is essential to have adequate strategies
to be best prepared to face them, and financial projections are an appropriate
tool.
·
The expenses: every company has costs and expenses. The former are
classified as fixed, which are those that are produced independently of
production and sales (rent, salaries, services, etc.) and variable, precisely
because they vary according to the level of production and sales (raw
materials, packaging, packaging, specific taxes, etc.). On the other hand,
expenses are money disbursements, in cash or the form of goods, that affect the
company's benefits (stationery, mail, advertising, training, etc.). The costs
are linked to the production process and the expenses with the activities.
·
Accounting: costs imply the sacrifice of resources (they are
assigned to one destination to the detriment of another); Expenses are costs
that are deducted from income for an accounting period. Keeping a detailed
detail of all the costs and expenses is essential; in general, when doing this,
many others appear that had not been taken into account and have a considerable
relative weight.
·
Margins: are numerical results that represent proportions of
profit over sales. The most common financial ratios are gross, net, and
operating profit margins. Never make overly optimistic financial projections
because operating costs are generally higher than budgeted. A good estimator to
calculate production costs equivalent to 50% of the sale price.
·
Financial
projections: the trend always leads to
calculating sales considering ideal and overconfident scenarios. It's not that
you don't have to do it because if you didn't have that mentality, you couldn't
start a business. But it is also important to be prepared for unfavorable
conditions and calculate the margins. Financial projections are not a guarantee
of success, but there is no doubt that they should not be stopped.
·
The
reformulation: the financial projections
offer seriousness and commitment and must be reformulated periodically. They
help reduce margins of error and are an attribute valued positively by
investors. In addition, at a strategic level, it allows the company to be
better positioned against unforeseeable future events.
·
Our
Recommendation: If you want to have an
exceptional financial plan for your startup then get in touch with Maven Business Plans. It is the best company all over the USA.
Financial projection outsourcing
Dedicating
time to make financial projections for a company is usually an unpleasant and
exhausting task for minds whose added value is the search for new opportunities.
Doing
them is not a guarantee of success either. However, financial projections
should not be underestimated because they significantly reduce risk, the margin
of error and improvisation, constituting a clear demonstration to investors of
the seriousness with which the undertaking is being developed.
However,
to deal with these situations in which the employer decides to concentrate all
his efforts exclusively on the aspects that make up his company's management,
other organizations are specialized in providing external and permanent
financial advice.
The
companies dedicated to outsourcing concentrate their actions on the analysis,
diagnosis and identification of the company's internal weaknesses and the
detection of the needs of the target audience. And based on that information,
they propose the best solutions for the company to generate value.
Therefore,
the most convenient way to make financial projections and fully engage in the
management and administration of a business is to outsource with a specialized
outsourcing service.
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