Making Financial Projections
Besides describing how your business will work, including how it will reach plenty of customers and fend off competitors, you'll also need to do some number crunching to show that it will in fact turn a profit.
No rosy descriptions in the world will make your business a success if the numbers turn up red.
Projecting the finances of your business may seem intimidating or difficult, but in reality, it's not terribly complex. Basically, it consists of making educated guesses as to how much money you'll need to spend and how much you'll take in, and using these estimates to calculate whether your business will be sufficiently profitable.
Needless to say, predicting and planning the finances of your business is an important task, not just to attract investors, but to demonstrate to you and your family whether or not your business idea will fly. If your first projections show your business losing money, you'll have an
opportunity while still in the planning stage to make sensible adjustments, such as raising your prices or cutting costs. If you neglect to make tight financial projections, you won't realise your plan is a money loser until you actually start losing money. At that point, it may be too late to turn things around.
Nonetheless, many new entrepreneurs avoid crunching their numbers, often due to fear that their estimates will be wildly off-base and yield useless results.
This is a poor reason to avoid forecasting your finances. If you do your best to make realistic predictions of expenses and revenues and accept that your estimates will not be absolutely correct, you can learn a great deal about what the financial side of your business is likely to look like in its early months and even years of operation.
Even a somewhat inaccurate picture of your business's likely finances will be much more helpful than having no picture at all.
Besides describing how your business will work, including how it will reach plenty of customers and fend off competitors, you'll also need to do some number crunching to show that it will in fact turn a profit.
No rosy descriptions in the world will make your business a success if the numbers turn up red.
Projecting the finances of your business may seem intimidating or difficult, but in reality, it's not terribly complex. Basically, it consists of making educated guesses as to how much money you'll need to spend and how much you'll take in, and using these estimates to calculate whether your business will be sufficiently profitable.
Needless to say, predicting and planning the finances of your business is an important task, not just to attract investors, but to demonstrate to you and your family whether or not your business idea will fly. If your first projections show your business losing money, you'll have an
opportunity while still in the planning stage to make sensible adjustments, such as raising your prices or cutting costs. If you neglect to make tight financial projections, you won't realise your plan is a money loser until you actually start losing money. At that point, it may be too late to turn things around.
Nonetheless, many new entrepreneurs avoid crunching their numbers, often due to fear that their estimates will be wildly off-base and yield useless results.
This is a poor reason to avoid forecasting your finances. If you do your best to make realistic predictions of expenses and revenues and accept that your estimates will not be absolutely correct, you can learn a great deal about what the financial side of your business is likely to look like in its early months and even years of operation.
Even a somewhat inaccurate picture of your business's likely finances will be much more helpful than having no picture at all.