AlongsideΒ accountingΒ basics, understanding how to create financial projections for yourΒ startup βs business plan is absolutely essential.
Neither is particularly excitingβespecially when you compare it to the idea at the core of your business. Yet to grow and scale, youβll need capital. In fact, 36% of people who plan to start a business in the next year identified βgetting fundingβ as one of their top financial priorities, according to a recent QuickBooks survey.
For external funding, financial projections help convince lenders and investors that your business will not only be profitable, but also offer them a return on investment. For internal purposes, accurate forecasting enables you to budget for your new business as well as benchmark your milestones.
Comparing your actual financial statements to your projections is referred to asΒ variance analysis . With this analysis, youβll be able to see if your business is consistently falling short of your projections or surpassing them.
If your projections are falling behind, then youβll need to make some changes by raisingΒ prices , cutting costs or rethinking your business model. Conversely, if your immediate revenue exceeds your pro forma income, then you may need to hire employees, expand your facility or seek financing sooner than you expected.