2015-01-13 11:00:14ForecastingEnglishFinancial projections provide a road map for small business growth. Learn how to make financial projections in order to make smart business...https://quickbooks.intuit.com/r/us_qrc/uploads/2015/01/istock_000026754966small.jpghttps://quickbooks.intuit.com/r/forecasting/projecting-business-success-5-tips-for-making-sound-financial-projections/5 Tips for Making Sound Financial Projections | QuickBooks

# Projecting Business Success: 5 Tips for Making Sound Financial Projections

Optimism is a healthy trait for entrepreneurs, who often need to stick it out through lean times before they build a successful business. When it comes to making financial projections, however, a healthy dose of pessimism comes in handy. Overly rosy income predictions could lead you to make decisions that jeopardize your business.

Whether you’re projecting the year to come or looking several years down the road, solid, reality-based financial projections provide a crucial road map for small business growth. Here are some tips to help you assess your success and make smart business decisions.

### 2. Use Your Cash Flow Projection to Predict Problems

One of the most useful steps you can take to plan for smooth financial sailing is to project your cash flow. Estimate your cash on hand at the end of each month, after you have paid yourself and your employees and met your tax obligations. This allows you to calibrate big expenses such as capital purchases with times of the year that your business will have more cash on hand. By highlighting places where cash may be tight, your cash flow projection shows you where to focus your energies on increased revenue.

### 4. Base Decisions on Your Break-Even Point

A crucial element of small business financial projections is a break-even analysis. Simply divide your total fixed expenses by your gross margin per unit. The result is the number of units you need to sell to break even over the course of a year. You may want to divide by 12 to calculate monthly sales goals.

Break-even point (in units) = Total fixed expenses (in \$) / Gross profit margin per unit (in \$)

or

Break-even point (in \$) = Total fixed expenses (in \$) / Gross margin rate (in %)

At the end of the day, you are in business to make a profit. When you want to launch a new product line or expand to a second location, plug the new expense into your financial projections to calculate how it affects your break-even point. Let your financial projections be your guide to sound business decisions.

### 5. Project, Revise, Repeat

Keep close track of your financial projections throughout the year to assess your business’ health. Compare projections to actuals to help you make more accurate predictions in the future. When you can adjust your projections to take account of changes in your business, it takes you a long way toward creating a road map to future opportunities — and avoiding pitfalls — that you can use to guide you all year long.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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