6 Tips for Acing Startup Financial Projections

Financial projections is a common word that’s well related to the world of business, even in a startup. When stripped of all the complex terms & fun innovative stuff at a start-up, at the end of the day, a business is basically: an act through which you invest money in a certain product or service, and this money may either multiply positively or diminish negatively based on what you have chosen to do with your money and time.  Ideas are very exciting and fun, but never forget: it’s about the money.

How much money am I putting in, and how much money am I getting back (Yes you!  Not just an investor).

Why You Need Financial Projections for a Startup

As many as 75% of all Entrepreneurs never break even when they think they will…and 40% aren’t even within a year of breaking even when they say they will.  Financial projections aren’t something to be taken lightly.  It is money.  If you can’t get financial projections right, from an investor’s point of view….how can I trust you with my money?

6 Tips for Calculating Startup Financial Projections

Some simple steps to calculate your startup financial projections:

Be Spreadsheet Savvy

This is the foremost necessity. Get comfortable with spreadsheet software. With spread sheets or tools like EZ Numbers, you can calculate the forecasts very easily.  The tool will automatically calculate a lot for you, including ROI, valuations, etc.  It will help you to save a lot of time as it is very user friendly and can help you do calculations very fast.

Study the Cash Flow

In order to calculate the financial projections, the inputs from all corners have to be taken in. Get acquainted with the income statement, the losses incurred, money that has to be paid to all employees, company expenses, maintenance costs and miscellaneous costs.

It is also necessary to include the details of the loan or equity investment that you might have borrowed for starting the business. If this is the case, the interest money that you’ll be spending on repayment should also be included in the expenses column. With all these details, a clear picture of your financial situation can be obtained.

Don’t Forget the Initial Investments

In general, the money required while beginning the startup  costs will be quite high when compared to the remaining months. This is mainly because you’ll need money for obtaining licenses, permits, and equipments. The moral here: While calculating your startup financial projections, it is necessary to include your initial investments too.

Go Short, Medium and Long

Startup financial projections, when they are calculated, can be done for various periods too. It is always better to have a short-term, medium-term, and long-term projections, although the latter might be difficult to predict when compared to the former two. The catch here is that long term projections will definitely be useful for your business’ future.

While calculating the short, medium, and long-term projections, it is also important to calculate the best-case and worst-case scenarios as this will help you understand and get some insights into how your business will fare if sales faces a positive boom, or if things take a turn for the worse.

Be Practical

This is the most essential part. It is always good to be practical and honest while calculating your startup financial projections. We all like numbers that satisfy us, but you need to be prepared for the worst as an entrepreneur. Rather than tweaking around the projections to suit your requirements, be practical in your approach.

With real startup financial projections you’ll always be in control of your business, without losing track of where your business is headed, while fixing your eye on the big picture.