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How To Create Financial Projections for Your Business Plan

Building a financial projection as you write out your business plan can help you forecast how much money your business will bring in.

Planning for the future, whether it’s with growth in mind or just staying the course, is central to being a business owner. Part of this planning effort is making financial projections of sales, expenses, and—if all goes well—profits.

Even if your business is a startup that has yet to open its doors, you can still make projections. Here’s how to prepare your business plan financial projections, so your company will thrive.

What are business plan financial projections?

Business plan financial projections are a company’s estimates, or forecasts, of its financial performance at some point in the future. For existing businesses, draw on historical data to detail how your company expects metrics like revenue, expenses, profit, and cash flow to change over time.

Companies can create financial projections for any span of time, but typically they’re for between one and five years. Many companies revisit and amend these projections at least annually. 

Creating financial projections is an important part of building a business plan . That’s because realistic estimates help company leaders set business goals, execute financial decisions, manage cash flow , identify areas for operational improvement, seek funding from investors, and more.

What are financial projections used for? 

Financial forecasting serves as a useful tool for key stakeholders, both within and outside of the business. They often are used for:

Business planning

Accurate financial projections can help a company establish growth targets and other goals . They’re also used to determine whether ideas like a new product line are financially feasible. Future financial estimates are helpful tools for business contingency planning, which involves considering the monetary impact of adverse events and worst-case scenarios. They also provide a benchmark: If revenue is falling short of projections, for example, the company may need changes to keep business operations on track.

Projections may reveal potential problems—say, unexpected operating expenses that exceed cash inflows. A negative cash flow projection may suggest the business needs to secure funding through outside investments or bank loans, increase sales, improve margins, or cut costs.

When potential investors consider putting their money into a venture, they want a return on that investment. Business projections are a key tool they will use to make that decision. The projections can figure in establishing the valuation of your business, equity stakes, plans for an exit, and more. Investors may also use your projections to ensure that the business is meeting goals and benchmarks.

Loans or lines of credit 

Lenders rely on financial projections to determine whether to extend a business loan to your company. They’ll want to see historical financial data like cash flow statements, your balance sheet , and other financial statements—but they’ll also look very closely at your multi-year financial projections. Good candidates can receive higher loan amounts with lower interest rates or more flexible payment plans.

Lenders may also use the estimated value of company assets to determine the collateral to secure the loan. Like investors, lenders typically refer to your projections over time to monitor progress and financial health.

What information is included in financial projections for a business?

Before sitting down to create projections, you’ll need to collect some data. Owners of an existing business can leverage three financial statements they likely already have: a balance sheet, an annual income statement , and a cash flow statement .

A new business, however, won’t have this historical data. So market research is crucial: Review competitors’ pricing strategies, scour research reports and market analysis , and scrutinize any other publicly available data that can help inform your projections. Beginning with conservative estimates and simple calculations can help you get started, and you can always add to the projections over time.

One business’s financial projections may be more detailed than another’s, but the forecasts typically rely on and include the following:

True to its name, a cash flow statement shows the money coming into and going out of the business over time: cash outflows and inflows. Cash flows fall into three main categories:

Income statement

Projected income statements, also known as projected profit and loss statements (P&Ls), forecast the company’s revenue and expenses for a given period.

Generally, this is a table with several line items for each category. Sales projections can include the sales forecast for each individual product or service (many companies break this down by month). Expenses are a similar setup: List your expected costs by category, including recurring expenses such as salaries and rent, as well as variable expenses for raw materials and transportation.

This exercise will also provide you with a net income projection, which is the difference between your revenue and expenses, including any taxes or interest payments. That number is a forecast of your profit or loss, hence why this document is often called a P&L.

Balance sheet

A balance sheet shows a snapshot of your company’s financial position at a specific point in time. Three important elements are included as balance sheet items:

• Assets. Assets are any tangible item of value that the company currently has on hand or will in the future, like cash, inventory, equipment, and accounts receivable. Intangible assets include copyrights, trademarks, patents and other intellectual property .
• Liabilities. Liabilities are anything that the company owes, including taxes, wages, accounts payable, dividends, and unearned revenue, such as customer payments for goods you haven’t yet delivered.
• Shareholder equity. The shareholder equity figure is derived by subtracting total liabilities from total assets. It reflects how much money, or capital, the company would have left over if the business paid all its liabilities at once or liquidated (this figure can be a negative number if liabilities exceed assets). Equity in business is the amount of capital that the owners and any other shareholders have tied up in the company.

They’re called balance sheets because assets always equal liabilities plus shareholder equity. 

5 steps for creating financial projections for your business

• Identify the purpose and timeframe for your projections
• Collect relevant historical financial data and market analysis
• Forecast expenses
• Forecast sales
• Build financial projections

The following five steps can help you break down the process of developing financial projections for your company:

1. Identify the purpose and timeframe for your projections

The details of your projections may vary depending on their purpose. Are they for internal planning, pitching investors, or monitoring performance over time? Setting the time frame—monthly, quarterly, annually, or multi-year—will also inform the rest of the steps.

2. Collect relevant historical financial data and market analysis

If available, gather historical financial statements, including balance sheets, cash flow statements, and annual income statements. New companies without this historical data may have to rely on market research, analyst reports, and industry benchmarks—all things that established companies also should use to support their assumptions.

3. Forecast expenses

Identify future spending based on direct costs of producing your goods and services ( cost of goods sold, or COGS) as well as operating expenses, including any recurring and one-time costs. Factor in expected changes in expenses, because this can evolve based on business growth, time in the market, and the launch of new products.

4. Forecast sales

Project sales for each revenue stream, broken down by month. These projections may be based on historical data or market research, and they should account for anticipated or likely changes in market demand and pricing.

5. Build financial projections

Now that you have projected expenses and revenue, you can plug that information into Shopify’s cash flow calculator and cash flow statement template . This information can also be used to forecast your income statement. In turn, these steps inform your calculations on the balance sheet, on which you’ll also account for any assets and liabilities .

Business plan financial projections FAQ

What are the main components of a financial projection in a business plan.

Generally speaking, most financial forecasts include projections for income, balance sheet, and cash flow.

What’s the difference between financial projection and financial forecast?

These two terms are often used interchangeably. Depending on the context, a financial forecast may refer to a more formal and detailed document—one that might include analysis and context for several financial metrics in a more complex financial model.

Do I need accounting or planning software for financial projections?

Not necessarily. Depending on factors like the age and size of your business, you may be able to prepare financial projections using a simple spreadsheet program. Large complicated businesses, however, usually use accounting software and other types of advanced data-management systems.

What are some limitations of financial projections?

Projections are by nature based on human assumptions and, of course, humans can’t truly predict the future—even with the aid of computers and software programs. Financial projections are, at best, estimates based on the information available at the time—not ironclad guarantees of future performance.

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• Business Planning

Business Plan Financial Projections

Written by Dave Lavinsky

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 an crucial part of your business plan for the following reasons:

• 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. 
• 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.
• 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 $500,000 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.

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

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

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

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.

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.

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.

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.

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 $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

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.

Business Plan Financial Projections FAQs

What is a business plan financial projection.

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

What are annual income statements? 

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

What are the necessary financial statements?

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

How do I create financial projections?

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

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How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

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Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

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Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

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How to make financial projections for business.

Writing a solid business plan should be the first step for any business owner looking to create a successful business. 

As a small business owner, you will want to get the attention of investors, partners, or potential highly skilled employees. It is, therefore, important to have a realistic financial forecast incorporated into your business plan. 

We’ll break down a financial projection and how to utilize it to give your business the best start possible.

Key Takeaways

Accurate financial projections are essential for businesses to succeed. In this article, we’ll explain everything you need to know about creating financial projections for your business. Here’s what you need to know about financial projections:

• A financial projection is a group of financial statements that are used to forecast future performance
• Creating financial projections can break down into 5 simple steps: sales projections, expense projections, balance sheet projections, income statement projections, and cash flow projections
• Financial projections can offer huge benefits to your business, including helping with forecasting future performance, ensuring steady cash flow, and planning key moves around the growth of the business

Here’s What We’ll Cover:

What Is a Financial Projection?

How to Create a Financial Projection

What goes into a financial projection, what are financial projections used for.

Financial Projections Advantages

Frequently Asked Questions

What Is Financial Projection?

A financial projection is essentially a set of financial statements . These statements will forecast future revenues and expenses. 

Any projection includes your cash inflows and outlays, your general income, and your balance sheet. 

They are perfect for showing bankers and investors how you plan to repay business loans. They also show what you intend to do with your money and how you expect your business to grow. 

Most projections are for the first 3-5 years of business, but some include a 10-year forecast too.

Either way, you will need to develop a short and mid-term projection broken down month by month. 

As you are just starting out with your business, you won’t be expected to provide exact details. Most financial projections are rough guesses. But they should also be educated guesses based on market trends, research, and looking at similar businesses. 

It’s incredibly important for financial statements to be realistic. Most investors will be able to spot a fanciful projection from a mile away. 

In general, most people would prefer to be given realistic projections, even if they’re not as impressive.

Financial projections are created to help business owners gain insight into the future of their company’s financials. 

The question is, how to create financial projections? For business plan purposes, it’s important that you follow the best practices of financial projection closely. This will ensure you get accurate insight, which is vital for existing businesses and new business startups alike.

Here are the steps for creating accurate financial projections for your business.

1. Start With A Sales Projection

For starters, you’ll need to project how much your business will make in sales. If you’re creating a sales forecast for an existing business, you’ll have past performance records to project your next period. Past data can provide useful information for your financial projection, such as if your sales do better in one season than another.

Be sure also to consider external factors, such as the economy at large, the potential for added tariffs and taxes in the future, supply chain issues, or industry downturns. 

The process is almost the same for new businesses, only without past data to refer to. Business startups will need to do more research on their industry to gain insight into potential future sales.

2. Create Your Expense Projection

Next, create an expense projection for your business. In a sense, this is an easier task than a sales projection since it seems simpler to predict your own behaviors than your customers. However, it’s vital that you expect the unexpected.

Optimism is great, but the worst-case scenario must be considered and accounted for in your expense projection. From accidents in the workplace to natural disasters, rising trade prices, to unexpected supply disruptions, you need to consider these large expenses in your projection. 

Something always comes up, so we suggest you add a 10-15% margin on your expense projection.

3. Create Your Balance Sheet Projection

A balance sheet projection is used to get a clear look at your business’s financial position related to assets, liabilities , and equity, giving you a more holistic view of the company’s overall financial health. 

For startup businesses, this can prove to be a lot of work since you won’t have existing records of past performance to pull from. This will need to be factored into your industry research to create an accurate financial projection.

For existing businesses, it will be more straightforward. Use your past and current balance sheets to predict your business’s position in the next 1-3 years. If you use a cloud-based, online accounting software with the feature to generate balance sheets, such as the one offered by FreshBooks, you’ll be able to quickly create balance sheets for your financial projection within the app.

Click here to learn more about the features of FreshBooks accounting software.

4. Make Your Income Statement Projection

Next up, create an income statement projection. An income statement is used to declare the net income of a business after all expenses have been made. In other words, it states the profits of a business.

For currently operating businesses, you can use your past income statements and the changes between them to create accurate predictions for the next 1-3 years. You can also use accounting software to generate your income statements automatically. 

You’ll need to work on rough estimates for new businesses or those still in the planning phase. It’s vital that you stay realistic and do your utmost to create an accurate, good-faith projection of future income. 

5. Finally, Create Your Cash Flow Projection

Last but not least is to generate your projected cash flow statement. A cash flow projection forecasts the movement of all money to and from your business. It’s intertwined with a business’s balance sheet and income statement, which is no different when creating projections. 

If your business has been operating for six months or more, you can create a fairly accurate cash flow projection with your past cash flow financial statements. For new businesses, you’ll need to factor in this step of creating a financial forecast when doing your industry research. 

It needs to include five elements to ensure an accurate, useful financial forecast for your business. These financial statements come together to provide greater insight into the projected future of a business’s financial health. These include:

Income Statement

A standard income statement summarizes your company’s revenues and expenses over a period. This is normally done either quarterly or annually.

The income statement is where you will do the bulk of your forecasting. 

On any income statement, you’re likely to find the following:

• Revenue: Your revenue earned through sales. 
• Expenses: The amount you’ve spent, including your product costs and your overheads.
• Pre-Tax Earnings: This is your income before you’ve paid tax.
• Net Income: The total revenues minus your total expenses. 

Net income is the most important number. If the number is positive, then you’re earning a profit, if it’s negative, it means your expenses outweigh your revenue and you’re making a loss. 

Cash Flow Statement

Your cash flow statement will show any potential investor whether you are a good credit risk. It also shows them if you can successfully repay any loans you are granted.

You can break a cash flow statement into three parts:

• Cash Revenues: An overview of your calculated cash sales for a given time period. 
• Cash Disbursements: You list all the cash expenditures you expect to pay.
• Net Cash Revenue: Take the cash revenues minus your cash disbursements.

Balance Sheet

Your balance sheet will show your business’s net worth at a given time.

A balance sheet is split up into three different sections:

• Assets: An asset is a tangible object of value that your company owns. It could be things like stock or property such as warehouses or offices. 
• Liabilities: These are any debts your business owes.
• Equity: Your equity is the summary of your assets minus your liabilities.

Looking for an easy-to-use yet capable online accounting software? FreshBooks accounting software is a cloud-based solution that makes financial projections simple. With countless financial reporting features and detailed guides on creating accurate financial forecasts, FreshBooks can help you gain the insight you need to let your business thrive. Click here to give FreshBooks a try for free.

Financial projections have many uses for current business owners and startup entrepreneurs. Provided your financial forecasting follows the best practices for an accurate projection, your data will be used for:

• Internal planning and budgeting – Your finances will be the main factor in whether or not you’ll be able to execute your business plan to completion. Financial projections allow you to make it happen.
• Attracting investors and securing funding – Whether you’re receiving financing from bank loans, investors, or both, an accurate projection will be essential in receiving the funds you need.
• Evaluating business performance and identifying areas for improvement – Financial projections help you keep track of your business’s financial health, allowing you to plan ahead and avoid unwelcome surprises.
• Making strategic business decisions – Timing is important in business, especially when it comes to major expenditures (new product rollouts, large-scale marketing, expansion, etc.). Financial projections allow you to make an informed strategy for these big decisions.

Financial Projections Advantages 

Creating clear financial projections for your business startup or existing company has countless benefits. Focusing on creating (and maintaining) good financial forecasting for your business will:

• Help you make vital financial decisions for the business in the future
• Help you plan and strategize for growth and expansion
• Demonstrate to bankers how you will repay your loans 
• Demonstrate to investors how you will repay financing
• Identify your most essential financing needs in the future
• Assist in fine-tuning your pricing
• Be helpful when strategizing your production plan
• Be a useful tool for planning your major expenditures strategically
• Help you keep an eye on your cash flow for the future

Your financial forecast is an essential part of your business plan, whether you’re still in the early startup phases or already running an established business. However, it’s vital that you follow the best practices laid out above to ensure you receive the full benefits of comprehensive financial forecasting.  

If you’re looking for a useful tool to save time on the administrative tasks of financial forecasting, FreshBooks can help. With the ability to instantly generate the reports you need and get a birds-eye-view of your business’s past performance and overall financial help, it will be easier to create useful financial projections that provide insight into your financial future. 

FAQs on Financial Projections

More questions about financial forecasting, projections, and how these processes fit into your business plan? Here are some frequently asked questions by business owners.

Why are financial projections important?

Financial projections allow you to gain insight into your business’s economic trajectory. This helps business owners make financial decisions, secure funding, and more. Additionally, financial projections provide early warning of roadblocks and challenges that may lay ahead for the company, making it easier to plan for a clear course of action.

What is an example of a financial projection?

A projection is an overall look at a business’s forecasted performance. It’s made up of several different statements and reports, such as a cash flow statement, income statement, profit and loss statement, and sales statement. You can find free templates and examples of many of these reports via FreshBooks. Click here to view our selection of accounting templates.

Are financial forecasts and financial projections the same?

Technically, there is a difference between forecasting and projections, though many use the terms interchangeably. Financial forecasting often refers to shorter-term (<1 year) predictions of financial performance, while financial projections usually focus on a larger time scale (2-3 years).

What is the most widely used method for financial forecasting?

The most common method of accurate forecasting is the straight-line forecasting method. It’s most often used for projecting the growth of a business’s revenue growth over a set period. If you notice that your records indicate a 4% growth of revenue per year for five years running, it would be reasonable to assume that this will continue year-over-year. 

What is the purpose of a financial projection?

Projection aims to get deeper, more nuanced insight into a business’s financial health and viability. It allows business owners to anticipate expenses and profit growth, giving them the tools to secure funding and loans and strategize major business decisions. It’s an essential accounting process that all business owners should prioritize in their business plans.

Michelle Alexander, CPA

About the author

Michelle Alexander is a CPA and implementation consultant for Artificial Intelligence-powered financial risk discovery technology. She has a Master's of Professional Accounting from the University of Saskatchewan, and has worked in external audit compliance and various finance roles for Government and Big 4. In her spare time you’ll find her traveling the world, shopping for antique jewelry, and painting watercolour floral arrangements.

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Writing a Business Plan—Financial Projections

Spell out your financial forecast in dollars and sense

Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it can be difficult to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, short- and medium-term financial projections are a required part of your business plan if you want serious attention from investors.

The financial section of your business plan should include a sales forecast , expenses budget , cash flow statement , balance sheet , and a profit and loss statement . Be sure to follow the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board , a private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.

Sales Forecast

As a startup business, you do not have past results to review, which can make forecasting sales difficult. It can be done, though, if you have a good understanding of the market you are entering and industry trends as a whole. In fact, sales forecasts based on a solid understanding of industry and market trends will show potential investors that you've done your homework and your forecast is more than just guesswork.

In practical terms, your forecast should be broken down by monthly sales with entries showing which units are being sold, their price points, and how many you expect to sell. When getting into the second year of your business plan and beyond, it's acceptable to reduce the forecast to quarterly sales. In fact, that's the case for most items in your business plan.

Expenses Budget

What you're selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It's a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others. Some costs likely will vary month by month such as advertising or seasonal sales help.

Cash Flow Statement

As with your sales forecast, cash flow statements for a startup require doing some homework since you do not have historical data to use as a reference. This statement, in short, breaks down how much cash is coming into your business on a monthly basis vs. how much is going out. By using your sales forecasts and your expenses budget, you can estimate your cash flow intelligently.

Keep in mind that revenue often will trail sales, depending on the type of business you are operating. For example, if you have contracts with clients, they may not be paying for items they purchase until the month following delivery. Some clients may carry balances 60 or 90 days beyond delivery. You need to account for this lag when calculating exactly when you expect to see your revenue.

Profit and Loss Statement

Your P&L statement should take the information from your sales projections, expenses budget, and cash flow statement to project how much you expect in profits or losses through the three years included in your business plan. You should have a figure for each individual year as well as a figure for the full three-year period.

Balance Sheet

You provide a breakdown of all of your assets and liabilities in the balances sheet. Many of these assets and liabilities are items that go beyond monthly sales and expenses. For example, any property, equipment, or unsold inventory you own is an asset with a value that can be assigned to it. The same goes for outstanding invoices owed to you that have not been paid. Even though you don't have the cash in hand, you can count those invoices as assets. The amount you owe on a business loan or the amount you owe others on invoices you've not paid would count as liabilities. The balance is the difference between the value of everything you own vs. the value of everything you owe.

Break-Even Projection

If you've done a good job projecting your sales and expenses and inputting the numbers into a spreadsheet, you should be able to identify a date when your business breaks even—in other words, the date when you become profitable, with more money coming in than going out. As a startup business, this is not expected to happen overnight, but potential investors want to see that you have a date in mind and that you can support that projection with the numbers you've supplied in the financial section of your business plan.

Additional Tips

When putting together your financial projections, keep some general tips in mind:

• Get comfortable with spreadsheet software if you aren't already. It is the starting point for all financial projections and offers flexibility, allowing you to quickly change assumptions or weigh alternative scenarios. Microsoft Excel is the most common, and chances are you already have it on your computer. You can also buy special software packages to help with financial projections.
• Prepare a five-year projection . Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict. However, have the projection available in case an investor asks for it.
• Offer two scenarios only . Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad medium-case scenarios. They likely will just cause confusion.
• Be reasonable and clear . As mentioned before, financial forecasting is as much art as science. You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, expect investors to see red flags.

How to Create Financial Projections for Your Business Plan

Written by Dave Lavinsky

Financial projections, also known as financial models, are forecasts of your company’s expected financial performance, typically over the next 5 years.

Over the past 25+ years, we’ve created financial projections for thousands of startups and existing businesses. In doing so, we’ve found 3 key reasons why financial projections are important:

• They help you determine the viability of your new business ideas and/or your need to make modifications to them. For instance, if your initial financial projections show your business idea isn’t profitable, you’ll know that changes are needed (e.g., raising prices, serving new markets, figuring out how to reduce costs, etc.) to make it viable.
• They are crucial for raising funding. Lenders will always review your financial projections to ensure you can comfortably repay any loans they issue you. Equity investors will nearly always review your projections in determining whether they can achieve their desired return on their investment in your business.
• They help keep your business financially on track by giving you goals. For instance, if your financial projections state your company should generate 100 new clients this year, and the year is halfway done and you’re only at 30 clients, you’ll know you need to readjust your strategy to achieve your goals.

In the remainder of this article, you’ll learn more about financial projections, how to complete them, and how to incorporate them in your business plan.

Download our Ultimate Business Plan Template Here to Quickly & Easily Complete Your Business Plan & Financial Projections

What are Financial Projections?

Financial projections are forecasts or estimations of your company’s future revenues and expenses, serving as a crucial part of business planning. To complete them you must develop multiple assumptions with regards to items like future sales volumes, employee headcount and the cost of supplies and other expenses. Financial projections help you create better strategies to grow your business.

Your financial projections will be the most analyzed part of your business plan by investors and/or banks. While never a precise prediction of future performance, an excellent financial model outlines the core assumptions of your business and helps you and others evaluate capital requirements, risks involved, and rewards that successful execution will deliver.

Having a solid framework in place also will help you compare your performance to the financial projections and evaluate how your business is progressing. If your performance is behind your projections, you will have a framework in place to assess the effects of lowering costs, increasing prices, or even reimagining your model. In the happy case that you exceed your business projections, you can use your framework to plan for accelerated growth, new hires, or additional expansion investments.

Hence, the use of financial projections is multi-fold and crucial for the success of any business. Your financial projections should include three core financial statements – the income statement, the cash flow statement, and the balance sheet. The following section explains each statement in detail.

Necessary Financial Statements

The three financial statements are the income statement, the cash flow statement, and the balance sheet. You will learn how to create each one in detail below.  

Income Statement Projection

The projected income statement is also referred to as a profit and loss statement and showcases your business’s revenues and expenses for a specific period.

To create an income statement, you first will need to chart out a sales forecast by taking realistic estimates of units sold and multiplying them by price per unit to arrive at a total sales number. Then, estimate the cost of these units and multiply them by the number of units to get the cost of sales. Finally, calculate your gross margin by subtracting the cost of sales from your sales.

Once you have calculated your gross margin, deduct items like wages, rent, marketing costs, and other expenses that you plan to pay to facilitate your business’s operations. The resulting total represents your projected operating income, which is a critical business metric.

Plan to create an income statement monthly until your projected break-even, or the point at which future revenues outpace total expenses, and you reflect operating profit. From there, annual income statements will suffice.

Sample Income Statement

Consider a sample income statement for a retail store below:

Cash Flow Projection

As the name indicates, a cash flow statement shows the cash flowing in and out of your business. The cash flow statement incorporates cash from business operations and includes cash inflows and outflows from investment and financing activities to deliver a holistic cash picture of your company.

Investment activities include purchasing land or equipment or research & development activities that aren’t necessarily part of daily operations. Cash movements due to financing activities include cash flowing in a business through investors and/or banks and cash flowing out due to debt repayment or distributions made to shareholders.

You should total all these three components of a cash flow projection for any specified period to arrive at a total ending cash balance. Constructing solid cash flow projections will ensure you anticipate capital needs to carry the business to a place of sustainable operations.

Sample Cash Flow Statement

Below is a simple cash flow statement for the same retail store:

Balance Sheet Projection

A balance sheet shows your company’s assets, liabilities, and owner’s equity for a certain period and provides a snapshot in time of your business performance. Assets include things of value that the business owns, such as inventory, capital, and land. Liabilities, on the other hand, are legally bound commitments like payables for goods or services rendered and debt. Finally, owner’s equity refers to the amount that is remaining once liabilities are paid off. Assets must total – or balance – liabilities and equity.

Your startup financial documents should include annual balance sheets that show the changing balance of assets, liabilities, and equity as the business progresses. Ideally, that progression shows a reduction in liabilities and an increase in equity over time.

While constructing these varied business projections, remember to be flexible. You likely will need to go back and forth between the different financial statements since working on one will necessitate changes to the others.

Sample Balance Sheet

Below is a simple balance sheet for the retail store:

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How to Create Financial Projections

When it comes to financial forecasting, simplicity is key. Your financial projections do not have to be overly sophisticated and complicated to impress, and convoluted projections likely will have the opposite effect on potential investors. Keep your tables and graphs simple and fill them with credible data that inspires confidence in your plan and vision. The below tips will help bolster your financial projections.  

Create a List of Assumptions

Your financial projections should be tied to a list of assumptions. For example, one assumption will be the initial monthly cash sales you achieve. Another assumption will be your monthly growth rate. As you can imagine, changing either of these assumptions will significantly impact your financial projections.

As a result, tie your income statement, balance sheet, and cash flow statements to your assumptions. That way, if you change your assumptions, all of your financial projections automatically update.

Below are the key assumptions to include in your financial model:

For EACH essential product or service you offer:

• What is the number of units you expect to sell each month?
• What is your expected monthly sales growth rate?
• What is the average price that you will charge per product or service unit sold?
• How much do you expect to raise your prices each year?
• How much does it cost you to produce or deliver each unit sold?
• How much (if at all) do you expect your direct product costs to grow each year?

For EACH subscription/membership, you offer:

• What is the monthly/quarterly/annual price of your membership?
• How many members do you have now, or how many members do you expect to gain in the first month/quarter/year?
• What is your projected monthly/quarterly/annual growth rate in the number of members?
• What is your projected monthly/quarterly/annual member churn (the percentage of members that will cancel each month/quarter/year)?
• What is the average monthly/quarterly/annual direct cost to serve each member (if applicable)?

Cost Assumptions

• What is your monthly salary? What is the annual growth rate in your salary?
• What is your monthly salary for the rest of your team? What is the expected annual growth rate in your team’s salaries?
• What is your initial monthly marketing expense? What is the expected annual growth rate in your marketing expense?
• What is your initial monthly rent + utility expense? What is the expected annual growth rate in your rent + utility expense?
• What is your initial monthly insurance expense? What is the expected annual growth rate in your insurance expense?
• What is your initial monthly office supplies expense? What is the expected annual growth rate in your office supplies expense?
• What is your initial monthly cost for “other” expenses? What is the expected annual growth rate in your “other” expenses?

Capital Expenditures, Funding, Tax, and Balance Sheet Items

• How much money do you need for Capital Expenditures in your first year  (to buy computers, desks, equipment, space build-out, etc.)?
• How much other funding do you need right now?
• What percent of the funding will be financed by Debt (versus equity)?
• What Corporate Tax Rate would you like to apply to company profits?
• What is your Current Liabilities Turnover (in the number of days)?
• What are your Current Assets, excluding cash (in the number of days)?
• What is your Depreciation rate?
• What is your Amortization number of Years?
• What is the number of years in which your debt (loan) must be paid back?
• What is your Debt Payback interest rate?

Create Two Financial Projection Scenarios

It would be best if you used your assumptions to create two sets of financial projections that exhibit two very different scenarios. One is your best-case scenario, and the other is your worst-case. Investors are usually very interested in how a business plan will play out in both these scenarios, allowing them to better analyze the robustness and potential profitability of a business.  

Conduct a Ratio Analysis

Gain an understanding of average industry financial ratios, including operating ratios, profitability ratios, return on investment ratios, and the like. You can then compare your own estimates with these existing ratios to evaluate costs you may have overlooked or find historical financial data to support your projected performance. This ratio analysis helps ensure your financial projections are neither excessively optimistic nor excessively pessimistic.  

Be Realistic

It is easy to get carried away when dealing with estimates and you end up with very optimistic financial projections that will feel untenable to an objective audience. Investors are quick to notice and question inflated figures. Rather than excite investors, such scenarios will compromise your legitimacy.  

Create Multi-Year Financial Projections

The first year of your financial projections should be presented on a granular, monthly basis. For subsequent years, annual projections will suffice. It is advised to have three- or five-year projections ready when you start courting investors. Since your plan needs to be succinct, you can add yearly projections as appendices to your main plan.

You should now know how to create financial projections for your business plan. In addition to creating your full projections as their own document, you will need to insert your financial projections into your plan. In your executive summary, Insert your topline projections, that is, just your sales, gross margins, recurring expenses, EBITDA (earnings before interest, taxes, depreciation, and amortization), and net income). In the financial plan section of your plan, insert your key assumptions and a little more detail than your topline projections. Include your full financial model in the appendix of your plan.

Other Helpful Business Plan Articles & Templates

Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

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In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

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Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

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Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

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How to Write a Financial Plan for a Business Plan

Noah Parsons

4 min. read

Updated July 11, 2024

Creating a financial plan for a business plan is often the most intimidating part for small business owners.

It’s also one of the most vital. Businesses with well-structured and accurate financial statements are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your business plan’s financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

• Key components of a financial plan in business plans

A sound financial plan for a business plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, you’ll need to include a few additional pieces of information as part of your business plan’s financial plan example.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your financial plan for a business plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• How to improve your financial plan

Your financial statements are the core part of your business plan’s financial plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

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Download and use these free financial templates and calculators to easily create your own financial plan.

Sales forecast template

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Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• What to include for funding

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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

• Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
• Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
• Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
• Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
• Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
• Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

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Run » finance, how to create a financial forecast for a startup business plan.

Financial forecasting allows you to measure the progress of your new business by benchmarking performance against anticipated sales and costs.

When starting a new business, a financial forecast is an important tool for recruiting investors as well as for budgeting for your first months of operating. A financial forecast is used to predict the cash flow necessary to operate the company day-to-day and cover financial liabilities.

Many lenders and investors ask for a financial forecast as part of a business plan; however, with no sales under your belt, it can be tricky to estimate how much money you will need to cover your expenses. Here’s how to begin creating a financial forecast for a new business.

[Read more: Startup 2021: Business Plan Financials ]

Start with a sales forecast

A sales forecast attempts to predict what your monthly sales will be for up to 18 months after launching your business. Creating a sales forecast without any past results is a little difficult. In this case, many entrepreneurs make their predictions using industry trends, market analysis demonstrating the population of potential customers and consumer trends. A sales forecast shows investors and lenders that you have a solid understanding of your target market and a clear vision of who will buy your product or service.

A sales forecast typically breaks down monthly sales by unit and price point. Beyond year two of being in business, the sales forecast can be shown quarterly, instead of monthly. Most financial lenders and investors like to see a three-year sales forecast as part of your startup business plan.

Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign.

Tim Berry, president and founder of Palo Alto Software

Create an expenses budget

An expenses budget forecasts how much you anticipate spending during the first years of operating. This includes both your overhead costs and operating expenses — any financial spending that you anticipate during the course of running your business.

Most experts recommend breaking down your expenses forecast by fixed and variable costs. Fixed costs are things such as rent and payroll, while variable costs change depending on demand and sales — advertising and promotional expenses, for instance. Breaking down costs into these two categories can help you better budget and improve your profitability.

"Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Tim Berry, president and founder of Palo Alto Software, told Inc . "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such."

Project your break-even point

Together, your expenses budget and sales forecast paints a picture of your profitability. Your break-even projection is the date at which you believe your business will become profitable — when more money is earned than spent. Very few businesses are profitable overnight or even in their first year. Most businesses take two to three years to be profitable, but others take far longer: Tesla , for instance, took 18 years to see its first full-year profit.

Lenders and investors will be interested in your break-even point as a projection of when they can begin to recoup their investment. Likewise, your CFO or operations manager can make better decisions after measuring the company’s results against its forecasts.

[Read more: ​​ Startup 2021: Writing a Business Plan? Here’s How to Do It, Step by Step ]

Develop a cash flow projection

A cash flow statement (or projection, for a new business) shows the flow of dollars moving in and out of the business. This is based on the sales forecast, your balance sheet and other assumptions you’ve used to create your expenses projection.

“If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months,” wrote Inc . The cash flow statement will include projected cash flows from operating, investing and financing your business activities.

Keep in mind that most business plans involve developing specific financial documents: income statements, pro formas and a balance sheet, for instance. These documents may be required by investors or lenders; financial projections can help inform the development of those statements and guide your business as it grows.

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Financial Projections for Startups [Template + Course Included]

January 11, 2022

Adam Hoeksema

Financial projections are an important part of any business plan or startup pitch deck. They allow a company to estimate future revenues, expenses, and profits, and to identify potential risks and opportunities.  We have been helping founders create financial projections through our templates, tools, and custom financial modeling services since 2012.  I thought it was finally time to write a comprehensive article that should answer the key questions that we get from founders again and again.  So here is what I plan to cover:

What are financial projections? 

Why should a startup create financial projections, how to create a financial forecast , creating sales projections based on data, forecasting operating expenses, salary projections.

• Startup cost forecasting

Pro forma financial statements

Existing business vs. startup vs acquisition forecasting, how to know whether my projections are realistic, what will investors and lenders be looking for in my projections, tools used for financial forecasting.

But first, who am I, and do I know anything about financial projections? 

My name is Adam Hoeksema and I am the Co-Founder of ProjectionHub.  Since 2012 we have helped over 50,000 entrepreneurs create financial projections between our software tool and our business projection spreadsheet templates . 

I didn’t spend a decade on Wall Street or make a killing in private equity, and I haven’t even raised VC funding myself.  

But I did spend over a decade launching a growing an SBA (Small Business Administration) lender in the Indianapolis, IN area.  During that time we made over 1,800 small business loans and we often asked our clients for financial projections along with their loan applications.  That is why I started ProjectionHub.  

So 10 years ago my experience was with helping small, main street businesses create projections and secure loan funding to start their dream.  Along the way, I learned a ton about startup projections for tech-based businesses as well.  Today about 50% of our work is with small businesses looking for an SBA loan and 50% is with tech-based businesses looking to raise capital from investors.  

With that background in mind, I want to share with you what I have learned along the way to try to make your financial forecasting process just a little bit easier.  Let’s dive in!

Financial projections are estimates of the future financial performance of a company. These projections are typically based on a set of assumptions and are used to help businesses plan for the future and make informed decisions about investments, financing, and other strategic matters. Most ProjectionHub customers use pro forma financials to help external stakeholders, such as investors and lenders understand a company's financial position and future prospects. Financial projections typically include projections of income, expenses, cash flow, and balance sheet items.  

There are many opinions on whether a startup needs to create a forecasted balance sheet and how many years a set of projections should be.  At ProjectionHub, all of our financial projection templates have an integrated pro forma income statement, cash flow and balance sheet in annual and monthly format for 5 years.  This seems to meet the needs of 99% of our customers, so I think it is pretty safe to say that your investor or lender might not require all of that level of information, but they probably won’t require more than a 5-year forecast of your 3 statement financials. 

So it sounds like a lot of work to create a financial forecast, so why do we create projections?  No one can know the future.  Isn’t it just a pointless exercise?  

Well, I think it is smart for an entrepreneur to create a set of projections before they start a business to understand what they are getting themselves into and what it will take to break even and generate a profit.  

I could beat that drum all day, and you know what it doesn’t really matter.  Even if we know it is a good idea to create projections before throwing our life savings into a new venture, most entrepreneurs will not create projections before starting their business.  I have just come to accept this!  

So the real reason to create projections is because the people with the money, the investors and lenders ask for them.  

• Investors will ask for a financial model because they want to see how you plan to use their money, how long you think it will last, and what the potential return could be. 
• Lenders will ask to see financial projections for startups or new projects or divisions in a business because they want to be able to see whether you think you can pay them back or not.  How does your debt service coverage ratio look? How many cups of coffee are you going to have to sell to make your monthly loan payment? 

Now that we know why we are creating projections and who the audience is, let’s get into the “how.”

So the plan now is to walk through how to create a set of financial projections, how to do good research to take a data-driven approach when modeling, what tools you can use to help you with research, and then how to know whether your forecast is realistic once you are done.   We are going to look at:

• Creating revenue projections
• Operating Expenses
• Salaries Forecasting
• How to get investor and lender-ready projections

Revenue Projections

This is where we will camp out for a while.  I want to show you a few examples of different types of revenue models to show you how I approach creating revenue projections.  

If you have a stable, existing business, then it is possible that the best approach to creating sales projections is simply to take last year’s numbers and apply a growth rate based on your expectations of growth.  Since that approach is quite straightforward I am not going to spend any time on that today. Our Existing Business Forecast Template will be perfect for you in this scenario.  

We are going to focus on more of a first principles approach.  I am going to outline two different approaches that I often take when building a financial model.  First a capacity approach and then a customer funnel approach.  

Capacity-Based Revenue Projections

I use a capacity-based approach to revenue projections when a company is pretty certain to have demand for their products or services and their revenue is more of a function of your price x capacity.  

Here are some examples of businesses where I would take a capacity-based approach. 

Farming Projections

For a farm, your revenue forecast is going to be based on how many acres you are farming x the yield per acre x the price per unit for your crop.  You don’t really need to worry about whether you have a customer or not.  Since most crops are commodities you won’t need to find a customer, you simply sell into the ready made market at the market price. 

Trucking Projections

Trucking is similar in the sense that as long as you have a valid license and a working truck, you will be able to find loads to deliver.  The question is more about how many trucks do you have, how many miles per day can each truck drive and what price will you be able to earn per mile.  Again this is about capacity and price, not whether or not you can find a customer.  This is the approach we take to show how a trucking business with one truck can generate $400k in annual revenue . 

Daycare Facility

A daycare facility will also be able to calculate a capacity based on the size of the facility and the teacher-to-student ratio requirements.  Once you have your capacity it is mostly a function of pricing to determine your revenue forecast.  You can see a screenshot from our daycare financial forecast tool to see how we think about modeling this type of business. 

I would say most tech businesses do not fall into a capacity-based projection approach. 

For tech companies, I typically use a customer funnel-based approach to forecasting revenue. 

Customer Funnel-Based Revenue Projection Approach

These are companies where your customer might not even know your product or service exists and might not know that they want it or need it so you are going to have to really go out and market and sell.  You will likely have a customer funnel that will have leads that convert into customers over time.  

Here are some examples of business models where I would use a customer funnel approach to financial modeling. 

B2B SaaS Projections

For a B2B SaaS product you will probably have an advertising budget and a sales team that will drive leads that your team will work to qualify.  Then some percentage of those sales qualified leads will turn into customers.  You will need assumptions for things like:

• A monthly ad budget 
• Cost per click to attract a website visitor
• Percentage of website visitors that become sales qualified leads
• Percentage of sales qualified leads that the sales team converts into customers
• Average monthly spend per customer

DTC Product Forecasting

For direct to consumer product companies you will have a similar customer funnel.  Once you get to a customer, then you might have assumptions like:

• Average order value
• % of customers that become repeat customers
• How often do repeat customers repurchase

Consumer Apps 

For a consumer mobile app you will need assumptions for things like:

• Monthly ad budget
• Cost per download
• Organic / word of mouth downloads
• % of customers that download the app that convert into active users
• % of active users that churn each year
• Average monthly spend per active user per month

So this should give you an idea of the structure of assumptions that you will need in order to approach creating projections, but I just left you with a bunch of assumptions that you have no idea how to fill in with realistic data.  

Next I want to show you what I would do in order to research and find good data for your sales projections. 

So how do you know how many people are searching on Google for terms that are relevant to your product or service?  How do you know how much it would cost to advertise and get a click for that term?  How do you know what a reasonable conversion rate is from a website visitor to a customer?  How do you know what the average order value is for an ecommerce business like yours, etc? 

I recorded an entire course on this , but I have listed some tools and some slides below to show you my typical research process. 

As you will notice in the slides, I start out be simply doing Google research to try to find reasonable assumptions for as many of the key assumptions as I can.  

From there, I like to use the following tools:

• Ahrefs - I use this tool for competitor research to determine how much organic traffic my competitors are getting and thereby how much organic traffic my website might get over time. 
• Google Trends - I use Google Trends to see seasonality trends in a business. 
• Google Adwords Keyword Tool - I use this tool to forecast how much it will cost per click to attract a website visitor, and to see search volume for certain keywords.
• Bizminer - You can use Bizminer industry reports to get an idea of key industry ratios to get an idea of whether your projections are realistic for your industry. 

When forecasting expenses I like a couple of different resources to help me forecast my expenses and ensure that my expense projections are within industry standards. 

Expenses for Small Businesses

Bizminer - You can use Bizminer industry reports to get an idea of key industry ratios.  For example, you can determine if the average company in your industry spends 10% on rent or 12% on rent. 

Expenses for Tech Startups

SaaS Capital - You can use this report from SaaS Capital to get an idea of the spending categories as a % of revenue for tech companies.  This is specifically focused on SaaS, so if you are in ecommerce or a hardware startup you will need to find a similar source for your industry.  You can see an example of the expense ratios from SaaS Capital below:

When forecasting salaries I actually take two different approaches.  I typically start out by projecting specific salaries and positions for the first 24 months of the projection.  Then after that, I simply include salaries in larger buckets of operating expenses like General & Admin, R&D, and Sales & Marketing.  When you are raising investment the investors will likely want to know your specific use of funds for the first 18 to 24 months, but after that they will understand that it is impossible to predict exact positions, timing and salaries, so transitioning to an expense as a % of revenue makes sense.  You can see how this looks in one of our financial models for a B2B SaaS company : 

Detailed Salary Projections for the First 24 Months:

Salaries included in operating expense categories as a percentage of sales for year 3 and beyond:

Startup Cost Forecasting

When forecasting your startup costs, your specific location, concept, size and scale of business will make a dramatic difference in what it costs to launch your business.  I don’t recommend that you just take the first “average startup cost” number that you find in a Google search because your specific situation matters.  You will need to do your own research for each startup cost, but I have actually found it helpful to use ChatGPT to ask for a list of common startup expenses for business XYZ so that I don’t forget any common expenses. 

I have already mentioned this before, but I commonly take a different approach to creating projections for an existing business compared to a startup compared to modeling a business acquisition.  

Existing Business Projections

When modeling a projection for an existing business I like to use our existing business budgeting template that allows me to enter in historical revenue and expenses and use that as a baseline to build a forecast by increasing or decreasing expenses and revenue based on my plans. 

Startup Projections

For a startup, I would use one of our 70+ industry specific financial projection templates and start from the ground up.  You would use the research process outlined in this article to create your projections. 

Forecasting a Business Acquisition

For creating projections for a business that you are looking to acquire I would use our acquisition financial model which will allow you to enter in historical financials from the target business, but it will also allow you to make adjustments to the balance sheet and revenue and expenses for a post acquisition pro forma. You can’t simply use the existing balance sheet and income statement because both will likely change quite a bit after the sale of the business.

Finally, I wanted to show you some example pro forma statements so that you can see what the end product should look like.  

Pro forma P&L Example

Here is an example of our 5 year pro forma income statement. 

Pro forma Balance Sheet Example

Here is an example of our 5 year pro forma balance sheet. 

Once you have a complete set of projections (if you are using a ProjectionHub template) I would suggest taking a look at the profit and loss at a glance table as seen below: 

In this example, I am looking at projections for a technology company that is looking to raise investment.  So a couple of things that I would look at for a tech company pro forma.  

• The first year should probably be a loss because that is why you are looking to raise investment right?  I would just make sure you are assuming that you will raise enough investment to cover that first year loss.  
• Next I would look at how fast revenue is growing.  For an investable company there is a rule of thumb “triple, triple, double, double” which means after investment an investor will be hoping that you triple sales the first 2 years and then double sales the following two years.  This is really hard to do, so if you are forecasting that you will do 10x every year you are probably off base! 
• For tech startups you can look at this study with our partner Story Pitch Decks where we looked at what is a reasonable projection for a tech startup .  This study will show you what other similar companies are projecting, so that you can ensure that whatever you project will fall within the norms that investors see. 

Investors and lenders will likely be looking at the following numbers and ratios to make sure your projections seem to be reasonable:

• Gross Profit Margin
• Profit Margin
• Debt Service Coverage Ratio
• Comparing to industry averages
• Do revenue projections, units sold make sense?
• Does your balance sheet balance?
• When do you reach breakeven?
• Do you have room for error?

I suggest that you simply Google these things and make sure your numbers seem “normal.”  For example, if you are opening a coffee shop you could Google “average profit margin for a coffee shop” and you would probably find our article on coffee shop profit margins .  Confirm that your forecasted profit margins are in line and reasonable. Do this same exercise with each of these key ratios and numbers.  

As a thank you for reading this behemoth of an article, you can download our free financial projection template .  Other tools that I utilized or mentioned in the article include:

• Ahrefs - For competitor research
• Google Trends - For seasonality trends
• Google Adwords Keyword Tool - For search volume and cost per click
• Bizminer - For industry expense ratios
• ProjectionHub Pro Forma Templates - You can use our library of templates built specifically for over 70 unique industries and business models. 

If you would like to learn more about my process for creating financial projections, you can watch this course that I put on for tech startups looking to create investor-ready financial projections. 

Insert Webinar video below

Well I hope this has been helpful to you.  If you have specific questions please feel free to reach out directly to us at [email protected]  

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

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Business Plan Financial Projections: How To Create Accurate Targets

• Written by Keith Murphy
• 17 min read

Small businesses and startups have a lot riding on their ability to create effective and accurate financial projections as part of their business plan. 

Solid financials are a strong enticement for investors, after all, and can help new businesses chart a course that will take them beyond the legendendarily difficult first year and into a productive and profitable future.

But the need for business owners to look ahead in order to secure funding, increase profits, and make intelligent financial decisions doesn’t end when startups become full-fledged businesses—and business plan financial projections aren’t just for startups. 

Existing businesses can also put them to good use by harvesting insights from their existing financial statements and creating sales projections and other financial forecasts that guide and improve their ongoing business planning.

What Are Business Plan Financial Projections?

Successful companies plan ahead, looking as best they can into the near and distant future to chart a course to growth, innovation, and competitive strength. 

Financial projections, both as part of an initial business plan and as part of ongoing business planning, use a company’s financial statements to help business owners forecast their upcoming expenses and revenue in a strategically useful way.

Most businesses use two types of financial projections:

• Short-term projections are broken down by month and generally cover the coming 12 months. They provide a guide companies can use to monitor and adjust their financial activity to set and hit targets for the financial year. In the first year, short-term projections will be entirely estimated, but in subsequent years, historical data can be used to help fine-tune them for greater accuracy and strategic utility.
• Long-term projections are focused on the coming three to five years and are generally used to secure investment (both initial and ongoing), provide a strategic roadmap for the company’s growth, or both.

For startups, creating financial projections is part of their initial business plan. Providing financial forecasts banks and potential investors can use to determine the financial viability of a business is key to obtaining financing and investments needed to get the business off the ground.

For existing businesses—for whom an initial business plan has evolved into business planning—financial projections are useful in attracting investors who want to see clear estimates for upcoming revenue, expenses, and potential growth. 

They’re also helpful in securing loans and lines of credit from financial institutions for the same reason. And even if you’re not trying to get funding or investments, financial projections provide a useful framework for building budgets focused on growth and competitive advantage.

So whether you’re a small business owner, an aspiring tycoon starting a new business, or part of the financial team at a well-established corporation, what matters most is viewing financial projections as a living, breathing reference tool that can help you plan and budget for growth in a realistic way while still setting aspirational goals for your business.

Financial Projections: Core Components

Whether you’re preparing them as part of your business plan or to enhance your business planning, you’ll need the same financial statements to prepare financial projections: an income statement, a cash-flow statement, and a balance sheet.

• Income statements , sometimes called profit and loss statements , provide detailed information on your company’s revenue and expenses for a given period (e.g., a quarter, year, or multi-year period).
• Cash flow statements provide a comprehensive view of cash flowing into and out of a business. They record all cash flow from operations, investment, and financing activities.
• Balance sheets are used to showcase a company’s assets, liabilities, and owner’s equity for a specific period.

How to Create Financial Projections

The process of creating financial projections is the same whether you’re drafting a business plan or creating forecasts for an existing business. 

The primary difference is whether you’ll draw on your own research and expertise (a new business or startup business) or use historical data (existing businesses).

Keep in mind that while you’ll create the necessary documents separately, you’ll most likely finish them by consulting each of them as needed. For example, your sales forecast might change once you prepare your cash-flow statement. 

The best approach is to view each document as both its own piece of the financial projection puzzle and a reference for the others; this will help ensure you can assemble comprehensive and clear financial projections.

1. Start with a Sales Projection

A sales forecast is the first step in creating your income statement. You can start with a one, three, or five-year projection, but keep in mind that, without historical financial data, accuracy may decrease over time. 

It’s best to start with monthly income statements until you reach your projected break-even , which is the point at which revenue exceeds total operating expenses and you show a profit. Once you hit the break-even, you can transition to annual income statements.

Also, keep in mind factors outside of sales; market conditions, global environmental, political, and health concerns, sourcing challenges (including pricing changes and increased variable costs) and other business disruptors can put the kibosh on your carefully constructed forecasts if you leave them out of your considerations.

Start with a reasonable estimate of the units sold for the forecast period, and multiply them by the price per unit. This value is your total sales for the period.

Next, estimate the total cost of producing these units (i.e., the cost of goods sold , or COGS; sometimes called cost of sales ) by multiplying the per-unit cost by the number of units produced.

Deducting your COGS from your estimated sales yields your gross profit margin.

From the gross margin, subtract expenses such as wages, marketing costs, rent, and other operating expenses. The result is your projected operating income , or net income .

Using these figures, you can create an income statement:

2. Cash Flow Statement

Tracking your estimated cash inflows and outflows from investment and financing, combined with the cash generated by business operations, is the purpose of a cash flow projection .

Investment activities might include, for example, purchasing real estate or investing in research and development outside of daily operations.

Financing activities include cash inflows from investor funding or business loans, as well as cash outflows to repay debts or pay dividends to shareholders.

A reliable and accurate cash flow projection is essential to managing your working capital effectively and ensuring you have all the cash you need to cover your ongoing obligations while still having enough left to invest in growth and innovation or cover emergencies.

Drawing from our income statement, we can create a basic cash flow statement:

3. The Balance Sheet

Providing a “snapshot” of your businesses’ financial performance for a given period of time, the balance sheet contains your company’s assets, liabilities, and owner’s equity.

Assets include inventory, real estate, and capital, while liabilities represent financial obligations and include accounts payable, bank loans, and other debt.

Owner’s equity represents the amount remaining once liabilities have been paid.

Ideally, over time your company’s balance sheet will reflect your growth through a reduction of liabilities and an increase in owner’s equity.

We can complete our triumvirate of financial statements with a basic balance sheet:

Best Practices for Effective Financial Projections

Like a lot of other business processes, financial planning can be complex, time-consuming, and even frustrating if you’re still using manual workflows and paper documents or basic spreadsheet-style applications such as Microsoft Excel. 

You can get free templates for basic financial projections from the Service Corps of Retired Executives (SCORE), but even templates can only take you so far.

Without a doubt, the best advantage you can give yourself in creating effective and accurate financial projections—whether they’re for the financial section of your business plan or simply part of your ongoing business planning—is to invest in comprehensive procure-to-pay (P2P) software such as Planergy.

In addition to helpful templates, best-in-class P2P software also provides a rich array of real-time data analysis, reporting, and forecasting tools that make it easy to transform historical data (or market research) into accurate forecasts. 

In addition, artificial intelligence and process automation make it easy to collect, organize, manage and share your data with all internal stakeholders, so everyone has the information they need to create the most useful and complete forecasts and projections possible.

Beyond investing in P2P software, you can also improve the quality and accuracy of your financial projections by:

• Doing your homework. Invest in financial statement analysis and ratio analysis, with a focus not just on your own company, but your industry and the market in general. Learn the current ratios used for liquidity analysis, profitability, and debt and compare them to your own to get a more nuanced and useful understanding of how your company performs internally and within the context of the marketplace.
• Keeping it real. It can be all too easy to get carried away with pie-in-the-sky optimism when forecasting the future of your business. Rose-colored glasses aren’t exclusive to startups and small businesses; over-inflated estimates can hobble even veteran organizations if they don’t practice good data discipline and temper their hopes with practical considerations. Focus on creating realistic, but positive, projections, and you won’t have to worry about investors or lenders glancing askance at your hard work.
• Hoping for the best, but planning for the worst. Run two scenarios when performing your financial projections: the best-case scenario where everything goes perfectly to plan, and a worse-case scenario where Murphy’s Law holds sway. While actual performance will undoubtedly fall somewhere in between the two, having an upper and lower boundary appeals to investors and lenders who are assessing your company’s financial viability.

Financial Projections Help You Reach Your Goals for Growth

From startups to global corporations, every business needs reliable tools for financial forecasting. 

Take the time to create well-researched, data-driven financial projections, and you’ll be well-equipped to attract investors, secure funding, and chart a course for greater profits, growth, and performance in today’s competitive marketplace.

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Financial Projection Templates to Help You with Planning

Written by: Raja Mandal

Evaluating your company’s financial performance is great. But planning for the future is just as important.

Sound financial projections give startups and established businesses a significant boost in making informed decisions and preparing for unexpected events. It forecasts estimated cash flow, sales, expenses, profit and other financial results you plan to achieve.

But that’s not all. When seeking funding, financial projections not only validate your business to investors or partners but also convince them of its growth potential.

So, how do you create one? Financial projection templates make the entire process a breeze. In this article, we’ve compiled 14 financial projection templates to simplify your financial planning process and help you make well-informed business decisions.

Table of Contents

What is a financial projection.

• What Should be Included in Financial Projections?
• 14 Financial Project Templates to Use

How to Create Financial Projections with Visme

Financial projections faqs.

• A financial projection is an estimate of future revenue, expenses and profits for a business. It helps decision-makers plan and strategize based on these predicted financial outcomes.
• The critical elements of a financial projection are the income statements, cash flow and balance sheet.
• Choose from Visme's financial projection and budget templates , ranging from presentations and reports to tables and dashboards.
• Customize your templates using Visme's advanced tools and features, like the dynamic fields, brand wizard, collaboration tools and more.
• Sign up for a free Visme account to create your financial projections easily.

A financial projection is a forecast of a business's future financial performance. It helps you estimate critical financial figures, such as revenues, expenses and profits, over a specific period.

By creating financial projections, business owners can plan, make informed decisions, and prepare for various possibilities. These predictions also act as a roadmap to guide growth, attract investors and estimate profitability.

Therefore, financial projections are necessary to run a business successfully, regardless of size and type.

Here's an example of what a financial projection document looks like and the insights it offers.

What Should Be Included in Financial Projections?

When creating a financial projection, there are three main sections you should focus on. These are the income statements, cash flow projections and balance sheet projections.

1. Income Statements

This is the storyteller of your company's performance, focusing on four essential items: revenue, expenses, gains and losses over a specific period. It reflects the results of your business operations and provides insights into whether you are losing or making money.

The income statements display your company's revenue, gross margin, costs, gross profit, taxes paid, marketing and other expenses.

This example shows your projected income statements.

2. Cash Flow Projections

Cash flow projections forecast the amount of money expected to come in and go out over a specific period. This report will help you manage your business operations and payments more effectively, especially during negative cash flow.

Additionally, it provides a quick overview of your company's liquidity and short-term financial stability.

3. Balance Sheet Projections

The balance sheet projection gives you a bird's eye view of your business's financial health. It forecasts your assets, liabilities and equity. By incorporating it into your financial projection, you can predict your financial status, plan for funding requirements and assure stakeholders about the financial stability of your business.

RELATED READING: 11 Best Financial Dashboards to Track Sales, KPIs & Metrics

14 Financial Projection Templates

Use these comprehensive templates to analyze and forecast your business's financial future. The templates are fully customizable, ranging from presentations and reports to budgets and tables.

Choose your template wisely and customize it using Visme’s budget planner .

Visme's tools and templates have enabled thousands of businesses across the globe to create valuable documents even with little or no design knowledge.

But don’t just take our word for it. Here's what one of our satisfied users has to say about Visme.

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Internal Communications Specialists, HouseCalls

You can read the full case study about How a Communications Team Was Able to Create Visual Content 60% Faster With Visme.

1. Financial Projections Presentation Template

This financial projection template is designed to transform your data into meaningful insights. It provides a clear and concise overview of your financial projections, including income statements, balance sheets, assets, liabilities and equity.

The tool offers unique features—such as radial gauges for income statement predictions and a dual chart—that visually illustrate total liabilities and equity. Additionally, the template showcases balance sheet ratios across different countries using an innovative vertical bar graph, providing a global perspective.

Visme's AI presentation maker can help you create professional-looking financial projection presentations in just a few minutes. This advanced tool simplifies the design process and helps you reduce the time spent on presentation design.

Provide your prompt, choose your preferred style, and the tool will generate everything - including the text, images and illustrations.

2. Financial Projections Presentation Modern Template

Here's a template that looks similar to the previous one but comes in a different color. However, with Visme, you don't have to restrict yourself to a limited color palette. In the editor, you can use the color wheel to create your own unique colors, apply a specific HEX code or choose from any of the color presets available.

3. Balance Sheet Presentation Template

Whether reviewing your company's finances or presenting to stakeholders, this balance sheet presentation template is a great way to show your financial projection.

It's designed with separate slides for different financial aspects, such as assets, liabilities and stockholder equity. The template also separates current and long-term liabilities into distinct slides and tables, making it easy to organize your financial data.

Turn numbers and statistics from your balance sheet into beautiful, meaningful visuals using Visme's data visualization tools . Visme offers 30+ data widgets such as radial gauges, progress bars, population arrays and many others to help you visualize data.

For larger data sets, you can choose from 20+ types of charts and graphs, including bar graphs , line graphs , pie charts and more.

4. Financial Audit Report Template

A well-audited financial report is crucial for financial projections and this template provides a classic way to communicate your findings effectively without drowning in numbers.

This comprehensive template presents asset data, including current and fixed assets and other elements such as income statements, cash flow, liabilities and partners' capital deficits. It displays detailed information in organized tables, with the added clarity of table and bar graphs for income statements.

Using this template makes it easy for you to spot trends and make forecasts in your business finances.

Are you looking for a way to save time on report creation? Visme's AI report writer is the solution you need. Whether you are compiling a quarterly financial summary or an end-of-year financial analysis, the tool guides you through the process.

All you need to do is generate your first draft report using a prompt. Once you've done that, you can choose a style and the tool will generate text, graphics and visuals to match. And if you want to make further tweaks, customize the template until you're happy with the final design.

5. Financial Statements Presentation Template

Illustrate your company's financial performance to ensure accuracy for tax, financing or investing purposes using this financial statement presentation template.

This template combats information overload by focusing on key facts, presented with minimal text and maximized data visibility. The creative use of icons and images reinforces information, making it more digestible and engaging. It's the perfect tool to present complex financial figures and estimates in an appealing and easy-to-understand format.

And if you need help writing the content for your financial projection templates, Visme’s AI writer is here to help. It can draft an entire financial statement, create a structure for your presentation and even proofread your text for grammatical or syntax mistakes.

Need to summarize a hefty report? Visme AI Writer can do it. Need persuasive CTAs for your stakeholders? It has you covered. All you need to do is explain what you want the tool to do for you and you're good to go.

6. Financial Analysis Presentation Template

The financial analysis presentation template empowers you to create a vivid, compelling narrative about your organization's financial health. It focuses on critical financial elements such as the profit vs. loss landscape, project earning capacity, assets and the operating profitability ratio.

With this template, you can easily translate complex figures into a simplified visual language that anyone can understand. You can quickly and efficiently explain your financial standpoints by examining assets and disclosing your operating profitability ratio.

Apply your brand's visual identity to your financial projection templates easily using Visme's brand design tool .

Simply copy and paste your website URL and the brand wizard will extract your brand colors , brand fonts and company logo from your website. Once saved, anyone from your team can apply your branding elements to any design with a single click.

This will help you establish credibility and reinforce your brand identity while presenting financial insights to stakeholders and team members.

7. Company Finance Report Template

The company finance report template simplifies how you analyze your business's finances. It clarifies the amount of money your company has and the amount it owes by breaking down assets and liabilities. It also allows you to compare your expected financial outcomes with the actual results, guiding you to stay on track.

Additionally, it summarizes financial market movements, helping you understand how your company fits into the larger financial landscape. It makes tracking your monthly operational expenses smoother, enabling you to manage costs effectively.

8. Company Financial Budget Template

A budget template makes it easy for you to plan and control financial activities in your business.

This company financial budget template helps you navigate the crucial aspects of budgeting, such as salaries, operating expenses and other miscellaneous costs. It strengthens your budgeting process with detailed income statements, ensuring you have a comprehensive view of your cash inflows, outflows and net cash flow.

Use Visme's dynamic fields feature to maintain consistency across all your financial projection documents. Create custom fields such as costs, revenue projections, profit margins or anything else you want.

Whenever you update the information, the tool automatically updates all the other documents or projects containing these fields. This way, you can ensure that your financial projections are always up-to-date and accurate.

9. Company Operating Budget Template

Use this template to plan your company's operating budget and create the sales forecast, the crucial elements for financial projections. It provides a detailed revenue and expense expectations plan, enabling you to predict future financial performance, strategically allocate resources and make informed decisions to achieve your financial goals.

It helps you simplify your company's cash flow and guides you toward fiscal targets with precision for upcoming periods or long-term planning.

Creating financial projection documents can be a complex task. It often requires the active collaboration of different members across an organization.

Visme's design collaboration tools can help simplify this process. It brings transparency, efficiency and security to the task.

With Visme, you can share the financial projection template with your team by sending email invitations or sharing a project link. It allows them to leave comments, annotate specific elements and edit the document together.

10. Company Expenses Report Template

Accurate tracking of expenses and smart budgeting are essential for the success of any business. This company expenses report template is designed to be your perfect companion in achieving this. It helps you systematically categorize your major corporate expenses, such as employee, office and marketing.

This template is not just a record of what you spend. It's also a tool to help you identify potential areas where you could better allocate the budget. It highlights sections where the expenditure proves beneficial, deserving more allocation and points out those costs you could cut.

With Visme's workflow management features , customizing your financial project and expense reports templates becomes more efficient and organized. You can assign specific tasks to team members and manage roles, tasks, progress and deadlines in one place.

11. Financial Projection Model Table Consulting Template

Forecasting a company’s financial future is no small task. The financial projection template is a comprehensive yet concise one-pager that provides a data tableau for each year over a specific period.

It features information about debts, liabilities, overdue amounts, assets and a detailed snapshot of your company’s financial status.

This template ensures key stakeholders can quickly grasp your financial standing and predict future trends. Besides the concise presentation, the template can be a valuable tool for strategists and analysts conducting in-depth studies on the company’s financial health.

12. Cash Flow Financial Model Table Template

The cash flow financial model table template is an easy-to-use tool that helps you manage and comprehend your business' finances. This template includes sections for all of your financial activities. It begins with the income earned from sales, grants and refunds.

Then, there is a segment that lists all the expenses of running your business, from buying supplies to paying for advertisements or investing in the growth of your business. All of this data allows you to determine whether you are earning more money than you are spending or the opposite.

13. Monthly Operating Expenses Dashboard Template

The monthly operating expenses dashboard template is an invaluable resource for keeping track of your financial activity and budget effectively. This template visually represents your company's monthly expenses, clearly showing expenditures across different categories, such as salaries, utilities and office supplies.

Using this organized and concise dashboard, you can quickly assess your spending, identify cost-saving opportunities and make more informed operational decisions to maintain financial stability.

With Visme's animation and interactivity tools , you can bring your financial projection templates to life.

With these tools, you can create interactive elements such as clickable menus, pop-ups, hover effects and more. You can add animated icons, illustrations and special effects to make the document more engaging.

14. Financial Performance Dashboard Template

With an intuitive and visually appealing layout and bar graphs, this dashboard displays critical financial metrics, including revenue, net profit and cash flow. The dashboard makes it easy for financial analysts to compare the current and previous month's performance and calculate the month-on-month change.

Seamlessly integrate your favorite applications like HubSpot , Salesforce and Mailchimp with Visme. This integration lets you export your charts, graphs and dashboards into third-party platforms for real-time insights into your financial performance.

For instance, you can integrate Salesforce data into your Visme documents to get live sales pipeline data and customer behavior that directly influences your financial projections.

Creating financial projections is straightforward with Visme. Just follow these three simple steps:

Step 1: Login to Visme and Choose Your Template

First things first, head over to the Visme website. If you're new, sign up for an account using your name and email address. If you already have an account, simply log in.

Once you're in, browse through Visme's collection of templates and pick one for financial projections. You’ll find a design that aligns well with your business needs and aesthetics.

Step 2: Customize the Template

The next step is to make that template yours. There are many ways to customize your templates in Visme.

Adjust the numbers/figures

One of the first steps in customizing the template includes adjusting the projected revenue forecasts, expense estimates and other figures. You'll find preset numerical values you can replace with your own to make the document valid for your business.

Modify the company details

Insert your company's name, address, and other details into the template. This will make the template uniquely yours and aid in better business recognition.

Change the fonts and colors

Visme lets you change fonts and colors according to your liking or brand image. You can use Visme's color wheel to create your own colors, copy-paste a HEX code or choose from the color presets.

Also, Visme comes with various fonts and font combinations that you can choose from.

Add or edit graphs and charts

To visualize more extensive data sets, you can choose from 20+ types of charts and graphs . Or, use the data widgets like progress bars, population arrays and radial gauges to visualize smaller data sets.

Edit the existing data visualizations to input your own values just by clicking on them and changing them from the sidebar.

Step 3: Download, Share, or Publish Your Document

After fine-tuning your financial projection, it's time to download and share it . Download your document in formats like PDF, JPG or PNG for offline use.

If you want to share it directly with colleagues or stakeholders online, Visme allows you to generate a shareable link. You can even publish your work online by generating a snippet of code to embed it on your website or landing page.

Q. Why Are Financial Projections Important?

Financial projections are crucial for several reasons:

• They help businesses establish goals and create a roadmap for achieving them.
• Projections guide businesses in allocating resources and managing cash flow, ensuring they remain financially stable.
• They allow businesses to make informed decisions based on their financial outlook, helping them mitigate risks and capitalize on opportunities.
• Investors and lenders constantly require financial projections to evaluate a business's potential for success, growth and ability to repay loans.
• Regularly updating and comparing projections with actual financial results can help identify areas where a business is underperforming and needs improvement.

Q. What Are Financial Projections Used for?

Businesses use financial projections for these purposes below

• Estimate the future financial performance of a business based on historical data and future assumptions
• Plan and make decisions about budgeting, investments, and overall financial strategy.
• Identify potential risks and opportunities, and can also be used to attract investors or secure financing.
• Forecast their financial future and make informed decisions based on that forecast.
• When a business or individual is planning to start a new venture, launch a new product or service or expand an existing operation.

Q. How to Calculate Financial Projections for Business Plan

To calculate financial projections for a business plan, you will need to estimate the future revenue, expenses and cash flow of your business.

• Start by creating a sales forecast based on market research and historical sales data.
• Then, estimate your cost of goods sold, operating expenses, and capital expenditures.
• Use these estimates to calculate your projected profit and loss statement, balance sheet and cash flow statement.
• Review and adjust your financial projections regularly as your business evolves and market conditions change.

Q. What Is a 3-Year Financial Projection?

A 3 year financial projection is a document that estimates a company's future financial position based on expected revenues, expenses and cash flow over a three-year period.

Q. How to Do a 3-Year Financial Projection?

Here's how you can make a 3-year financial projection:

• Sales Projection: Analyze past sales data, observe current market trends, and consider the impact of your potential marketing or strategic initiatives. Use these to forecast your sales for the next three years.
• Expense Projection: Identify all business costs, including raw materials, labor, marketing, rent, utilities, etc., and gather them over three years. Remember to consider expected inflation or cost increases.
• Balance Sheet Projection: Project your assets, liabilities and equity for each year based on your sales and expense forecasts.
• Income Statement Projection: Use your sales and expense projections to estimate yearly net income and sales.
• Cash Flow Projection: Forecast all cash inflows and outflows and keep track of your closing cash balance at the end of each year. This helps identify when you need additional funding.

Q. Is Financial Projection the Same as Financial Plan?

No, a financial projection is not the same as a financial plan. A financial projection forecasts future revenue and expenses, estimating how much money the company may make or spend. A financial plan is broader; it outlines the business's financial goals and how to achieve them, including savings, investments and budgeting.

Q. Are Financial Forecasts and Financial Projections the Same?

No, though often used interchangeably, financial forecasts and financial projections are not the same. A financial forecast predicts the financial outcomes in the near future based on current conditions and expected short-term trends. In comparison, a financial projection is a calculation that shows what could happen if the business performs in a certain way.

In other words, a forecast is based on current conditions, whereas projections are based on potential scenarios.

Plan, Report & Strategize Finances with Visme

A financial projection is like a weather forecast but for your business! It's your best guess of how much money your business will make (revenues), how much it will spend (expenses), and what will be left after paying everything off (profits) in the future.

Creating financial projections is always challenging and time-consuming. But it's worth the effort to create a financial projection to help you make better decisions about your business.

With Visme, crafting financial projections becomes straightforward. All you need is your financial data, a Visme account, and a few minutes. You can use the financial projection templates provided in this article as a starting point and customize them using Visme’s advanced tools.

Besides financial documents, Visme also helps create various documents for different teams, such as marketing , human resources , training and development , and others. This way, Visme ensures you have all the documents you need to run and grow your business successfully.

Sign up for Visme today and take your financial projections to the next level.

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Raja Antony Mandal is a Content Writer at Visme. He can quickly adapt to different writing styles, possess strong research skills, and know SEO fundamentals. Raja wants to share valuable information with his audience by telling captivating stories in his articles. He wants to travel and party a lot on the weekends, but his guitar, drum set, and volleyball court don’t let him.

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Home > Financial Projections > How to Make Financial Projections

How to Make Financial Projections

This is a series of posts setting out how to make financial projections for a business plan. Accordingly this post will act as a general index and be a place to reference all the posts in the series.

Financial Projections Template

When using the template, simply amend the highlighted input elements to suit your purposes, and the template does the rest.

Outline Task List – How to Make Financial Projections

We have set out below a handy reference task list showing how to make financials for a business plan using the free business plan financial projections template, follow the links for further details and information. If you’re not yet sure whether your business idea is viable, it might be worth carrying out a break even analysis before preparing a full financial business plan.

Income Statements

• Estimate revenue
• Calculate or estimate your gross margin.
• Estimate operating expenses
• Decide on the depreciation rate
• Find the interest rate
• Find the tax rate

In summary the Income Statement shows:

Balance sheets

• Estimate start up expenses
• Estimate start up assets
• Estimate startup capital (equity)
• Calculate start up debt finance required

Opening Balance Sheet

• Enter fixed assets opening balance
• Enter cash opening balance
• Enter opening accounts receivable
• Enter opening inventory
• Enter opening accounts payable
• Enter opening other liabilities balance
• Enter opening debt
• Enter the opening debt payment term
• Enter opening capital

Projected Balance Sheets

• Determine days sales outstanding
• Determine inventory days
• Determine days payable outstanding
• Determine other liabilities days outstanding

To summarize the balance sheet shows:

Cash flow Statements

• Estimate capital expenditure
• Estimate new debt
• Enter the new debt payment term
• Estimate new equity capital

Financial Model Reality Check

It is important to realize that it is unlikely that the first draft from the financial projections template will be perfect. Consequently review the financial model output and make changes to see how they affect the projections. Repeat the process until the income statements, balance sheets, and cash flow statements represent your proposed business plan activity, and the financial model behaves and responds in the way you expected it to.

How to make Financial Projections Conclusion

When considering how to make financial projections remember that you should include all 3 financial statements , income statement, balance sheet and cash flow statement including details of any financing arrangements. The template will ensure that the projections add up, but its important to understand how the financial statements inter-relate.

In conclusion try to keep the business model and projections simple, remember less is more. Additionally do not over complicate the projections with extra lines or too many scenarios . Provide reasonable projections which you can justify, do not be too aggressive or over-optimistic when preparing them, particularly the revenue projections.

As has been noted the post is one of a series covering the process of how to do financial projections for a business plan to start your business. Consequently this post will act as a general index and be a place to reference all the posts in the series.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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If you run a multimillion-dollar empire, it’s likely that your accounting staff is using enterprise-level software that can quickly and easily produce financial projections.

But if you’re a sole proprietor, freelancer, or micro-business owner, you’re likely to use data from your accounting software in order to prepare financial projections, but the software won’t help you in the preparation itself.

While that may sound confusing, it just means that most software applications such as QuickBooks Online , Sage 50cloud Accounting , and Xero can create the financial statements needed for you to prepare your financial projections, but the software itself will not be used in the actual creation of the projections.

At a glance: How you can create and utilize financial projections

• Three financial statements -- a balance sheet, income statement, and cash-flow statement -- are required for any financial projections you create.
• New businesses need financial projections, too. If you’re still in the planning stages, be aware that you will still need to prepare projections for your business plan.
• You’ll likely be using a template to prepare your projections. While accounting software provides the basis for your financial projections, most small business accounting software applications aren’t capable of producing financial projections.

Overview: What are financial projections?

Financial projections are an important part of managing your business. Preparing financial projections may seem like a daunting task for small business owners, but if you can create financial statements, you can create financial projections. Similar to creating a budget, financial projections are a way to forecast future revenue and expenses for your business.

Frequently used as a way to attract future investors, financial projections are also an important component when preparing a business plan for a new business or creating a strategic plan for your current business.

You can create both short-term and long-term financial projections, with most business owners using both types of projections:

Short-term projections: Short-term projections usually cover a year and are typically broken down by month.

Long-term projections : Long-term projections typically cover the next three to five years and are usually used when creating a strategic plan, or for attracting investors.

What are financial projections used for?

Financial projections can be used in a variety of ways, but they’re usually used to attract investors or when applying for a bank loan or line of credit.

Here are a few situations that would call for financial projections:

• You’re creating a business plan: One of the first things potential investors or banks want to see is a financial projection for your business, even if it isn’t operational yet.
• You’re hoping to attract investors: When looking to invest in a business, investors typically look for financial viability. No one will invest in a business without a financial projection that outlines variables such as expenses, revenue, and growth patterns.
• You’re applying for a loan or line of credit: Again, banks or other financial institutions are interested in the financial health of your business. This means providing them not just with current financial statements that outline current business performance, but also where you see your business next year, and the year after.
• You want to get a better handle on your business: You may not be in the market to attract investors or obtain a bank loan, but you do want to be able to map out your potential growth and create budgets allowing your business grow and thrive. Financial projections can help here, too.

How to create financial projections for your small business

When you’re creating financial projections for your business, the same information is required whether your business is up and running or still in the planning stages.

The difference is whether you can create your projections using historical financial data, or if you’ll need to start from scratch. This includes creating projections based on your own experience in the field, or by doing some market research in the industry in which your business will operate.

Step 1: Create a sales projection

Sales projections are an important component of your financial projections. For existing businesses, you can base your projections on past performance obtained from your financial statements. For instance, if your sales tend to be higher in the summer and fall, you’ll want to include that in your projections.

You’ll also need to take under consideration some outside factors, such as the current and projected health of the economy, whether your inventory may be affected by additional tariffs, and whether there’s been a downturn in your industry.

While we all want to be optimistic about our businesses, be sure to plan realistically.

This is one of Microsoft Excel's templates for sales forecasting. Image source: Author

Those still in the planning stages can follow the exact same plan (minus historical data), but you’ll need to do some additional research into the health of similar businesses in your proposed industry in order to plan as accurately as possible.

Step 2: Create an expense projection

Creating an expense projection may initially seem a bit simpler, because it’s easier to predict possible expenses than it is to predict the buying habits of current or potential customers.

For those working from history, you can predict with some certainty what your fixed expenses are, such as your rent or mortgage, along with recurring expenses such as utilities and payroll.

However, it’s much harder to predict those one-time expenses that have the potential to destroy your business.

What if the roof leaks in your business and destroys 75% of your inventory? What if you import the majority of your inventory from China, and you’re hit with escalating prices?

The “what ifs” can drive any of us crazy. All you can do is project expenses to the best of your ability, and maybe tack on an additional 15% to your initial number.

Step 3: Create a balance sheet projection

If you’re using accounting software and your business has been operational for at least a few months, you’ll be able to create a balance sheet directly from your software.

A balance sheet shows the financial position of your business, listing assets, liabilities, and equity balances for a particular time frame.

When creating your financial projections, you can use your current balance sheet totals to better predict where your business will be one to three years down the road.

For those of you in the planning stages, create a balance sheet based on the information you have collected from industry research.

Step 4: Create an income statement projection

Current business owners can easily create an income statement projection by using your current income statement to estimate your projected numbers.

This Excel template can be used to display revenue, cost of goods sold, expenses, and other income to identify net income. Image source: Author

An income statement provides a view of the net income of your business after things such as cost of goods sold, taxes, and other expenses have been subtracted.

This can give you a good idea of how your business is currently performing as well as serve as the basis for estimating net income for the next one to three years.

If you're in the planning stages, producing a possible income statement demonstrates that you’ve done your research and have created a good-faith estimate of your income for the next three years.

If you’re not sure where to start, visit market research firms such as Allied Market Research, which can give you an overview of your targeted industry, including product sales, target markets, and current and expected industry growth levels.

Step 5: Create a cash flow projection

The last step in completing your financial projection is the cash flow statement. The cash flow statement ties into both the income statement and the balance sheet, displaying any cash or cash-related activities that affect your business.

The cash flow statement shows how money is being spent, a must for those looking to attract an investor or obtain financing.

Again, you can use your current cash flow statement if your business has been operational for at least six months, while those of you in the start-up phase can use the data you’ve collected in order to create a credible cash flow projection.

Benefits of using accounting software for your financial projections

If you’re an existing business owner, you’re likely using accounting software to track your financial transactions. If so, the availability of financial reports such as a balance sheet, income statement, and cash flow statement are valuable resources when creating financial projections.

Here are some of the benefits of using accounting software:

• Accuracy: Unless you’re still in the planning stages, having the ability to create various financial reports and transactional histories from your software application helps to ensure your financial projections are based on accurate numbers.
• Availability of data: Being able to pull financial reports can go a long way in preparing financial projections. While you’ll likely create the projections themselves using a spreadsheet application such as Microsoft Excel, the data for your projections is readily available for you and others to access and review.
• Credibility: Being able to include supporting financial statements created by your accounting software with your financial projections lends credibility to your business and signals that you’re serious.

If you’re looking for a template to use to create financial projections, SCORE offers a downloadable financial projections template from Excel.

Finding the best way to create financial projections

While you’ll likely be using a template to create your financial projections, don’t underestimate the important role accounting software plays in creating accurate financial projections -- a necessity if you’re looking for investors or additional financing for your business.

If you’re still using manual ledgers or spreadsheet software to manage your business, it may be time to step up to the next level of professionalism by choosing and implementing an accounting software application that works for your business.

If you’re not sure which accounting software is right for you, be sure to check out our accounting software reviews .

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Original text

Crafting a winning business plan isn't just about putting ideas on paper; it's about strategically paving the road to success. Whether you're starting a new venture or looking to scale an existing one, having a well-structured business plan is essential. 

It serves as your roadmap, guiding decisions and attracting potential investors. 

This comprehensive document must cover seven key elements that collectively provide direction, showcase potential, and demonstrate viability. 

Let's delve into what makes each element indispensable for your business's success.

7 Key Elements for a Successful Business Plan

Creating a solid business plan is crucial for any successful venture. These seven key elements will guide you through the process, ensuring your plan is comprehensive and compelling.

1. Executive Summary

The executive summary is your business plan’s opening statement and should capture the essence of your company in a concise manner. It needs to succinctly outline your business mission, vision, and core values. 

Additionally, it should highlight key aspects such as the problems your product or service solves, your unique value proposition, and a brief overview of your target market. 

This section is often what potential investors will read first, so make sure it clearly communicates why your business is worth their attention and investment. By effectively summarizing these elements, you set a strong foundation for the rest of your business plan.

2. Market Analysis

Understanding your market is crucial for the success of your business. You need to identify your target audience, understand their needs and preferences, and study the competitive landscape. 

Conducting thorough research allows you to anticipate trends and spot potential opportunities or threats within the industry. For instance, if you're venturing into the beverage industry, utilizing a complete alcohol pricing guide can provide valuable insights into setting competitive prices. 

By analyzing consumer behavior and competitor strategies, you’ll be better positioned to carve out a niche for your product or service in a crowded marketplace, ensuring long-term growth.

3. Company Description

Your company description provides an in-depth look at the heart of your business. Start by explaining the nature of your business and the industry in which you operate. 

Highlight the unique aspects that set you apart from competitors, such as innovative products or exceptional services. Detail your business structure, mentioning whether it's a sole proprietorship, partnership, or corporation. 

Include relevant information about your location and any significant milestones reached thus far. This section should give readers a clear understanding of who you are, what you do, and why you're positioned for success in your market.

4. Organization and Management

In this section, you’ll outline the organizational structure of your company. Introduce the key members of your management team and provide insights into their roles, backgrounds, and expertise. Highlight how their unique skills contribute to the company's success. If applicable, include an organizational chart to visually depict team hierarchy and reporting lines. 

Also, discuss any advisory boards or consultants that add strategic value. This part is crucial because potential investors need confidence in the team's ability to execute the business plan effectively and steer the company toward its goals.

5. Products or Services Line

Detailing your products or services is essential for conveying their value to potential investors and customers. Describe each offering, including its features, benefits, and the problems it solves. Explain what makes your products or services unique compared to those of competitors. 

Highlight any proprietary technology, special ingredients, or innovative processes that set you apart. 

Additionally, consider discussing future developments or upcoming product lines that could further enhance your market position. By clearly defining what you offer, you'll help stakeholders understand why your business fills a critical need in the marketplace.

6. Marketing Strategy

Your marketing strategy outlines how you plan to attract and retain customers. Begin by identifying your target market and understanding their behaviors and preferences. 

Explain the various channels you'll use to reach this audience, from social media campaigns to traditional advertising methods. Discuss your branding approach, including key messages and unique selling points that will resonate with your customers. Outline any partnerships or collaborations that could amplify your marketing efforts. 

This section should clearly demonstrate how you intend to build visibility, generate leads, and drive sales for sustained business growth.

7. Financial Projections & Funding Request

This section is vital for illustrating your business’s financial health and future potential. Provide detailed financial projections, including income statements, cash flow statements, and balance sheets for the next three to five years. Clearly outline your assumptions and include any planned investments or operational changes that might impact these projections. 

Additionally, specify the amount of funding you’re seeking, and explain how it will be used to achieve your business objectives. Whether it’s for expanding operations, hiring staff, or launching new products, detailing the intended use of funds helps build investor confidence.

These Elements are Necessary for a Successful Business Plan

Now that you understand the seven key elements of a successful business plan, it's time to take action. Start by considering each component and how it applies to your vision and market. 

Remember, a well-thought-out plan is your foundation for success, helping you navigate challenges and seize opportunities. Don't wait - begin drafting your business plan today and set yourself on a path toward achieving your entrepreneurial dreams.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

Cash Flow Projection – A Guide to Financial Projections

February 2, 2024

A cash flow projection is much more than a way to predict how much cash will move in and out of your business over a set period.

It’s the lifeblood that helps your business become less reactive and more proactive, enabling you to anticipate challenges and make sure bills are paid on time and cash surpluses are wisely invested.

Think of a cash flow projection as a financial navigator for your business, one that gives you advanced warning of any potential storms or opportunities on the horizon.

In this guide, we outline the six steps required to perform a cash flow forecast and explain techniques like scenario planning and sensitivity analysis.  

We also weigh up the pros and cons of using spreadsheets versus cash flow forecasting software , so you can decide which one makes most sense for you.

What is a cash flow projection?

Before we explain how to perform a cash flow projection, let’s first cover the basics.

Cash flow is the amount of cash that flows in and out of your business during a specific period. Also known as a cash flow forecast , cash flow projection involves estimating what your cash flow will look like for a future period – whether a month, quarter or year from now.

As we’ll explain in this guide, this estimate of future cash flow is based on a range of data and factors, including predicted sales and expenses as well as the timing of payments to your business. These predictions are typically informed not only by your business’ past financial data, but also non-financial data.

This can include factors like expected market or economic conditions, or internal initiatives slated for the future period, like for instance entering a new market or launching a new product.

Once you’ve created your base level cash flow forecast, you can get even more insight into future cash flow using sensitivity analysis or scenario planning – techniques that we’ll fully explain later in this guide.

The importance of data in cash flow projections

Performing an accurate cash flow projection means tapping into a variety of financial and non-financial data.

For instance, estimating future sales will involve assessing past revenue figures as well as seeing how many opportunities you currently have in the pipeline and at what stage they're at in the sales cycle. You’ll also need to factor in how long it typically takes for different sales opportunities to close.

To estimate future sales or expenses, you’ll need to look at historical data to identify patterns and trends over past months, quarters or years. You’ll also need to factor in external dynamics like seasonal fluctuations, changing economic or market conditions, as well as the fluctuating price of goods and materials.

Considering all these factors means sourcing data that may sit in spreadsheets, accounting software or CRM systems, or with different business stakeholders. It’s important to have easy access to this data to perform an accurate cash flow projection.

How to perform a cash flow forecast in 6 steps

Now that you understand the purpose and general scope of a cash flow projection , let’s get into the practical considerations and actions required for an accurate calculation. We’ve broken this down into five key steps:

1. Calculating your opening cash balance

To start your cash flow forecast, you need to know your opening cash balance, which is the amount of cash you have at the beginning of the period you’re forecasting.

If this is your first cash flow projection, use your current reconciled cash balance. If you’ve done this before, use the closing balance from the previous period as your opening balance for the new projection.

2. Estimating your sales

An accurate cash flow projection requires predicting your future sales for the period based on figures in past income statements, as well as the trends you identify across these.

When reviewing past figures, make sure to consider contextual factors that may have influenced sales. This can include seasonal fluctuations, supply chain disruptions, wider economic factors or the effect of internal changes like, for instance, the launch of a new product.

Also consider such factors when predicting your sales, too. For example, if your historical data shows that sales typically increase by 20 during the holiday season, you should factor that into your projection for those months.

Another example is if you’re planning a significant marketing campaign, you might anticipate a boost in sales.

3. Project when you’ll receive payments

The timing of your cash inflows is as important as the amount. If your business primarily deals in cash sales, this step is straightforward – payments are received at the time of sale. However, if you extend credit to customers, you need to account for the delay in receiving payments.

To do this, calculate your average Days Sales Outstanding (DSO), which represents the average time it takes for your customers to pay their invoices. For instance, if you have 30-day payment terms but typically receive payments after 45 days, this delay should be factored into your cash flow projection.

To calculate DSO, use the below formula:

DSO = (accounts receivable \ total credit sales) X number of days

4. Estimate other sources of income

While sales revenue often constitutes the bulk of your cash inflows, your business may have other sources of cash inflows like rental income, interest earnings, investment returns, royalties and any one-time gains.

To incorporate these revenue sources into your cash flow projection, first list each type of additional income and estimate the amounts for the period based on contracts, agreements or historical data.

Combine this with your projected sales revenue to determine the total incoming cash for the period.

5. Estimate your costs

Next, estimate your expenses for the period, dividing them into fixed and variable costs. Fixed costs, such as rent, salaries and insurance remain constant regardless of your sales and are therefore relatively easy to predict.

Variable costs, on the other hand, fluctuate with your business activity. These might include costs for raw materials, shipping, utilities and commissions.

For example, if you’re planning a significant marketing push, your advertising expenses will likely increase. Similarly, if you’re scaling up production to meet higher demand, your material and labour costs will rise.

It’s important to also account for any irregular expenses, such as annual subscriptions, tax payments or one-off equipment purchases.

6. Calculate your closing balance

This first involves determining your net cash flow for the period by subtracting the costs from the revenue you expect. With this calculation, you can see whether you expect a surplus or a shortfall of cash.

For example, if your total inflows are $9,000 and your total outflows are $3,590, your net cash flow for the month would be a surplus of $5,410

Next, you’ll need to add your net cash flow to your opening cash balance to determine your closing cash balance for the period. This closing balance will become your opening balance for the next month or period.

For example, if your opening balance was $2,000 and you project a net cash inflow of $5,410 for the month, your closing balance would be $7,410.

Gaining deeper insights with scenario planning and sensitivity analysis

While a single projection can give you valuable foresight, you can gain a wider idea of how your cash flow may perform by testing different potential scenarios.  

One technique to do this is scenario planning, which helps you visualise the paths your business could take by creating multiple cash flow forecasts based on different assumptions about the future.

Unlike sensitivity analysis, which focuses on the effect of changing a single variable, scenario planning considers multiple variables and their interactions to project complex situations.

To conduct scenario planning, start by identifying the key factors that could influence your business, such as market trends, economic conditions, regulatory changes or technological advancements. Then, develop a series of scenarios which could include:

• ‍ Base-case scenario : Represents the expected or most likely outcome based on current trends. ‍
• Best-case scenario : Envisions the most favourable conditions, where everything aligns perfectly to benefit your business. ‍
• Worst-case scenario : Assumes that multiple challenges arise simultaneously, leading to the most difficult operating environment.

Cash flow projection example using scenario planning

Let’s get more clarity on what these different scenarios can tell you with some practical cash flow projection examples.

In the base-case scenario, you project stable revenue at $10 million. The cost of goods sold (COGS) remains consistent at 60 percent of revenue, resulting in costs of $6 million. Operating expenses are maintained at $2 million. The result is a net cash flow of $2 million.

A best-case scenario could be that you anticipate a 20 percent rise in revenue to $12 million. With COGS improving to 58 percent of revenue, costs total $6.96 million. Operating expenses went up by 10 percent to $2.2 million. This results in a net cash flow of $2.84 million.

Finally, a worst-case scenario may involve a 15 percent revenue drop to $8.5 million. COGS stays at 60 percent of revenue, costing $5.1 million. Operating expenses remain at $2 million. This results in a net cash flow of $1.4 million.

Check out our blog for more information on scenario planning .

Tools and software for cash flow projection

When it comes to performing projections, most people typically fall into two camps; those who use spreadsheets and those who use advanced cash flow projection software.

Let’s look at the advantages and disadvantages these tools offer to help you decide which is right for your business.

Pros and cons of using spreadsheets

Spreadsheets have been a go-to tool for cash flow projecting for decades, and they have some clear advantages. But like anything, they come with downsides too. Here’s a quick rundown:

• Spreadsheets are incredibly flexible, allowing you to create custom formulas and even automate tasks with macros.
• Since you’re the one building and maintaining the spreadsheet, you have full control over the data and formulas.
• Cost is a big advantage, as tools like Excel and Google Sheets are either free or relatively inexpensive.
• Collaboration can be challenging as multiple people working on the same spreadsheet can lead to version control issues and other headaches.
• Spreadsheets are prone to errors, and a single wrong input or broken link can derail your entire forecast, leading to time-consuming troubleshooting.
• Creating visually appealing charts and graphs in spreadsheets isn’t always straightforward, often requiring significant manual effort.
• As your data expands, spreadsheets can struggle with scalability, becoming slow and difficult to manage.  

Cash flow projection software

There is a variety of cash flow projection software on the market designed to help you save time, reduce manual data entry and gain more granular insights.

For instance, our cloud-based financial management platform Fathom can help you visualise your cash flow forecasts and test different scenarios. Let’s look at the advantages of Fathom over spreadsheets.

• Unlike spreadsheets that require manual updates, Fathom automatically syncs with your latest financial data.
• Multiple team members can work on projections simultaneously, without the version control issues common with spreadsheets.
• While it’s often difficult to track data origins with spreadsheets, Fathom allows you to easily audit your forecasts and trace the source of every figure.
• Visual reporting makes it simple to present financial insights to stakeholders and eliminates the effort required to manually create charts in spreadsheets.
• Advanced reporting capabilities like variance analysis allow you to quickly identify discrepancies between actual performance and projections.
• While spreadsheets can become difficult to navigate as data volumes increase, Fathom can efficiently handle large datasets.

Look at the video below if you want a helpful overview of Fathom’s cash flow forecasting capabilities:

Projecting cash flow for start-ups and small businesses

Given their limited cash reserves and uncertain revenue streams, maximising cash flow is especially critical for startups and small businesses – and the insights they can gain from cash flow projections are invaluable to this end.

But compared to larger businesses, those on the smaller end of the scale typically need to overcome certain hurdles when performing a cash flow forecast. Let’s look at these challenges and how they can be solved, as well as a few tips that can help enhance cash flow.

Challenges and solutions  

A key challenge for startups and small businesses is they may lack the historical financial data needed to project future revenues and expenses. A solution to this is to use industry benchmarks like this Australian example provided by the AUSTRALIAN TAXATION OFFICE (ATO) .

These benchmarks can help you establish baseline projections based on the performance of similar businesses. Market research can also help identify key trends, customer behaviors and competitive dynamics that may impact cash flow.

Another common challenge for start-ups and small businesses is the unpredictability of income streams. This is where scenario planning and sensitivity analysis is particularly useful.

As we explained before, scenario planning enables you to test best-case, worst-case and most likely scenarios, and then develop contingency plans for each. Testing a worst-case scenario, where you underestimate potential revenue and overestimate expenses, is especially important if your business has uncertain and fluctuating revenue streams.

Enhancing cash flow during startup years

The first few years of a startup or small business are often the most challenging in terms of cash flow management. Here are some helpful tips for boosting cash flow during this uncertain time:

• Maintain rigorous bookkeeping to ensure your books are up-to-date and organised, reconciling accounts regularly to track financial health.
• Set strict guidelines for credit card use, vendor payments and expenses, and set up checks and balances like dual authorisation for large expenses.
• Negotiate favourable payment terms with vendors and invoice clients promptly.
• Keep a close eye on your operating expenses and look for areas where you can cut costs without compromising quality.
• Encourage early payments from customers by offering incentives or discounts.
• Use credit cards responsibly and avoid those that require personal guarantees.
• Consider short-term financing options like lines of credit or invoice financing.

Cash flow projections are not just a financial exercise; they are a vital strategic tool that can guide your business through uncertainty and towards growth.

By projecting your cash flow, you gain valuable insights into your business’ financial future, allowing you to make informed decisions and seize opportunities as they arise.

Incorporating cash flow projections into your financial planning process not only helps you stay ahead of financial pitfalls but also enables you to make strategic investments and manage resources more effectively.

Whether you choose to use spreadsheets or invest in dedicated cash flow forecasting software, the key is to regularly review and refine your projections to keep them aligned with the evolving needs of your business.

Experience smarter financial planning with Fathom

Try Fathom free for 14 days to see why it’s the cash flow forecasting software of choice for over 80,000 businesses globally to forecast, analyse, report and consolidate.

With Fathom, it is easy to visualise your future cash flow with one  powerfully simple business management solution. Fathom also provides KPI dashboards to track profit, growth and progress towards financial goals, and advanced reporting capabilities.

It integrates directly with leading accounting platforms like Xero, QuickBooks and MYOB, making it easier to get started, stay connected, and get more out of your data. View all our integrations .

You can learn more about Fathom’s cash flow projection capabilities with our webinars for businesses and accountants . You can also access more helpful content and customer case studies on our blog .

Kit is the Content Marketing Manager for The Access Group APAC and Fathom. He is a former journalist with extensive experience in content writing and copywriting across various industries, including higher education, not-for-profit, and finance sectors.

More From Forbes

The present and future of financial planning and analysis (fp&a).

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Bilal Surahyo is the CFO & CIO at Simpli Home Furniture .

In today's dynamic business landscape, effective financial planning and analysis (FP&A) has become an indispensable function for organizations seeking to thrive amid uncertainty and complexity. FP&A encompasses the crucial tasks of budgeting, forecasting, financial analysis and performance management.

The Present State Of FP&A

In recent years, FP&A has undergone significant transformations due to advancements in technology, access to real-time data and the growing importance of data-driven decision-making. The integration of artificial intelligence (AI) and machine learning (ML) technologies has enabled FP&A professionals to analyze vast amounts of data quickly, uncover valuable insights and enhance accuracy in financial projections.

The utilization of cloud-based platforms has facilitated collaboration and streamlined financial processes, allowing organizations to access critical data in real time and make agile decisions. Moreover, the integration of enterprise resource planning (ERP) systems with FP&A tools has provided a holistic view of financial data, enabling better financial analysis and planning.

The advent of predictive analytics has empowered FP&A professionals to move beyond historical data and anticipate future outcomes. Through scenario modeling and simulation, organizations can assess the potential impact of various economic factors, market conditions and business strategies, enabling proactive decision-making and risk management.

Furthermore, the role of FP&A has expanded beyond traditional financial reporting to include strategic insights. FP&A professionals are now expected to provide actionable recommendations, support business strategy formulation and drive performance improvement initiatives. This shift in responsibilities has elevated the importance of FP&A as a strategic partner to senior management, enabling the alignment of financial goals with overall business objectives.

The Future Of FP&A

As we look ahead, the future of FP&A promises further advancements and challenges driven by technological innovations, evolving business landscapes and changing stakeholder expectations. Here are some key trends that are likely to shape the future of FP&A:

• Advanced Analytics And AI: The integration of advanced analytics techniques, including AI and ML, will continue to revolutionize FP&A. Predictive analytics will become more sophisticated, enabling organizations to gain deeper insights into customer behavior, market trends and financial performance. Automated forecasting models and real-time data analysis will enhance decision-making and facilitate proactive planning.

• Data Governance And Security: With the increasing reliance on data, organizations will need to prioritize data governance and security to maintain the integrity and confidentiality of financial information. Robust data management frameworks, privacy regulations and cybersecurity measures will be critical to protect sensitive financial data from breaches and ensure compliance.

• Strategic Partnerships: FP&A professionals will play an even more integral role in strategic decision-making, collaborating closely with business leaders and providing valuable insights. They will be responsible for identifying growth opportunities, optimizing resource allocation and evaluating the financial viability of new ventures.

• Integrated Planning: The future of FP&A lies in integrating financial planning with other operational areas such as sales, marketing and supply chain. This holistic approach will enable organizations to align their financial goals with operational strategies, enhance efficiency, and improve overall business performance.

• Enhanced Visualization And Reporting: Interactive dashboards, data visualization tools, and self-service reporting capabilities will become increasingly prevalent in FP&A. These advancements will enable stakeholders to access financial insights easily, explore data visually and make informed decisions without extensive reliance on technical experts.

• Agility And Scenario Planning: As the business environment continues to evolve rapidly, FP&A professionals will need to embrace agility and scenario planning. The ability to adapt quickly to changing market conditions, economic factors and emerging risks will be crucial for organizations to thrive in uncertain times.

The field of financial planning and analysis (FP&A) has witnessed remarkable advancements in recent years, driven by technological innovations and changing business landscapes. The integration of AI, advanced analytics and real-time data has empowered FP&A professionals to provide strategic insights and drive business performance.

Looking forward, the future of FP&A will be characterized by enhanced analytics capabilities, data governance, strategic partnerships, integrated planning, improved visualization and agility in decision-making. By embracing these trends and leveraging emerging technologies, organizations can unlock the full potential of FP&A and navigate the complex financial.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

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Business | Returning to work? Here are some financial…

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Business | Returning to work? Here are some financial planning considerations for seniors

Author Judith Ward, a certified financial planner, notes that if a person has not claimed his or her benefits when they initially retired, “unretiring allows you to delay claiming  even further. The longer you delay  claiming your benefits (up until age  70), the higher your monthly benefits,  which increase by 8% for every year  past your FRA (full retirement age) that you delay receiving them, until you reach age 70. The  converse is true, too: Filing early — at  age 62 — can lead to an almost 30%  reduction in benefits.”

If people stop working before their full retirement age, “and claimed benefits but then decided  to go back to work,” they have a year “to apply for a withdrawal of benefits.” She notes the worker would need to repay what he or she received, and “Social Security will act as if you never took benefits in the first place.”

“If you have reached your (full retirement age) but are not yet 70, you can suspend payments and earn delayed retirement  credits, increasing your monthly benefit.”

People who work prior to full retirement while receiving benefits can reduce  the size of their benefits because of  income limitations. If you exceed the 2024 earned income limit of $22,320, “benefits will be reduced by  $1 for every $2 you earn above the limit. (Benefits are recalculated once you reach  FRA to give you credit for the months  in which your benefit was reduced or  withheld due to excess earnings.)”

Once a person reaches full retirement and continues to work, the amount of benefits is not affected. There is an exception to the upside: “Additional  years in which you earn a high income  could potentially increase your benefit,” Ward writes. “Your benefit is based on your best-paid  years. It’s possible that a current wage  could replace a lower or zero earning  year for purposes of determining your  Social Security benefit.”

“Ultimately,”  Ward says, “it may be better to delay claiming benefits until  (full retirement) or later while you are working.”

Avoiding pitfalls

Local advisers and analysts say many people who are near full retirement age or who are approaching it hurt their own cause by failing to compile a budget, being too generous toward family members, and refusing to adjust their lifestyles when their best earning years are behind them.

“I think the pain of the sandwich generation is well known, and we are talking about wage earners who are being stretched several ways at once, whether it’s caring for a parent, or trying to provide financial support to those who are younger or early in their financial journeys,” said Mark Hamrick, an economic analyst and Washington bureau chief at Bankrate.

Christian Martinez, a financial adviser at the Miramar-based Tropical Financial Credit Union, said it’s important to undertake detailed planning to ensure a worker doesn’t end up getting penalized by Social Security when they work and receive benefits at the same time.

“I tell people you want to engage in a part-time or flexible work arrangement without triggering a benefit reduction,” he said. “They need to just make sure they have a financial plan in place and they’re budgeting to account for their incomes from their work and their benefits.”

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