Although it may feel like you launched your business on a wing and a prayer, at some point you’ll recognize it takes planning and preparation to succeed in the long run. That’s where creating realistic financial projections comes into play, as doing so allows you to tap into your existing data to make the wisest business decisions going forward. Here’s what you need to know about building this critical tool.
The Importance of Projections
Whether you’re looking to attract outside investors or simply need to fine-tune your budgeting, producing accurate financial projections is a crucial task for any business owner. Backers will require a realistic forecast of your future expenses, revenues, and cash flow to determine if your company is worth investing in, while as an owner, you need that same data to stay in the black and maximize margins.
Realistic projections will help you make sound decisions for everything from ordering merchandise to hiring more staff. These forecasts will also aid in predicting your annual tax liability, making it easier to remain compliant when it comes to the mandatory payments and filings required by most states. Without proper reporting, you risk your good standing and could even lose the right to operate.
How To Create Projections
Financial projections are created by compiling historical data from expense, income, and sales reports, balance sheets, and profit and loss statements. If you’re not already using Quickbooks or other accounting software to cull that information, you’ll find doing so will take the heavy lifting off your plate when tracking your finances. Using paper ledgers, or, worse, keeping everything in your head, doesn’t cut it when accuracy is paramount.
Once you have your reports, you’ll then include other factors such as market conditions, planned growth, and changes in material costs to hone your projections. Tap into industry resources and your own observations for this ancillary information. When you’ve gathered what you need, the Service Corps of Retired Executives provides a useful template for pulling this data together into useful forecasts.
Skills To Improve Your Acumen
After grasping the importance of projections and keeping a close eye on other economic matters, you’ll soon realize that sharpening your skills will help you build a healthier company. Going back to school will give you a new set of tools for success.
When you earn an accounting degree, you’ll master how to use financial reporting and standardized practices to guide your decisions. You’ll be able to take the data available to you as a business owner and compile it into accurate projections that improve your bottom line.
Taking it a step further and getting an MBA will not only teach you the skills you need to better oversee your finances, but it will also give you a strong foundation in management, marketing, operations, and sales. If you worry you don’t have time to run a business, manage a family, and go back to school, you’ll find online educations provide the flexibility you need to handle all your responsibilities. Programs are available to meet almost any time constraint.
To reach your full potential for profitability, you’ll need the information provided by accurate financial projections. Understanding the importance of this data and how to compile it, along with returning to school to polish your business acumen, may make the difference between the long-term success or failure of your enterprise.