Launching a business is an exhilarating journey, and amidst the excitement, creating a comprehensive business plan might seem like a daunting task. If you find yourself short on time, fret not—been there, done that. Not time to create your business plan? DO THIS!

When I launched my business in 2013, my business plan was essentially a series of bullet points on paper. However, one crucial aspect was meticulously done—my financial projections.

Financial projections are the backbone of your business plan, transforming it from a conceptual idea into a strategic roadmap for success. Let’s delve into why these projections are the most essential piece of the puzzle.

Why Financial Projections Matter?

Profitability Assessment: Your financial projections play a pivotal role in determining whether your new product or service has the potential for profitability. It’s not just about making sales; it’s about making sales that contribute to the bottom line. Understanding the financial viability of your venture is essential for long-term success.

Sales + Profit Estimates: While making sales is undoubtedly a key objective, profitability is equally crucial. Financial projections provide estimates about future sales and profits, offering a realistic view of your business’s potential revenue streams. This insight is invaluable for making informed decisions and setting realistic business goals.

Resources Management: One of the significant advantages of financial projections is their ability to guide resource management. By forecasting your financial needs, you can allocate resources efficiently—whether it’s personnel, equipment, or marketing expenses. This strategic approach ensures that you’re utilizing your resources optimally.

Anticipating Cash Flow: Cash flow is the lifeblood of any business. Financial projections allow you to anticipate cash flow, ensuring you have the necessary funds to cover operational expenses, investments, and unforeseen challenges. Effectively managing cash flow is critical for the sustainability and growth of your business.

How to build your financial projections?

When it comes to financial projections, your budget must encompass three key elements, a P&L, a Cash Flow Budget and a Balance Sheet.

You may decide that a P&L is enough, but it’s not!

When it comes to steering your business toward success, relying solely on a Profit and Loss (P&L) statement is a risky venture. While the P&L gives you a snapshot of profitability, the Cash Flow Budget is equally indispensable.

A P&L may reveal profits on paper, but without an effective cash flow strategy, your business might encounter liquidity challenges. A Cash Flow Budget anticipates the flow of cash, ensuring you’re well-prepared for operational needs.

Remember, a balanced approach with both P&L and Cash Flow Budget is the key to financial stability and resilience.

Here are the three essential elements of your financial projections (AKA BUDGET):

Profit & Loss Statement: The P&L statement provides a snapshot of your revenue, costs, and expenses, ultimately revealing whether your business is profitable or incurring losses over a certain period. It’s a crucial tool for assessing the financial health of your company.

I always create a 3-year monthly budget for my clients to help them see the impact of their decisions (hiring a new team member, launching a new product/service, adding more tools to help their run their business on autopilot).

Cash Flow Budget: Anticipating and managing cash flow is essential for avoiding liquidity issues. A cash flow budget outlines the inflow and outflow of cash, helping you plan for expected and unforeseen financial needs.

It’s not because you invoice a client today, that you will receive a payment this month. By creating different hypothesis for your account payables and receivables, planning when you will need to re-invest money or invest money to scale your business is essential!

Balance Sheet: The balance sheet provides a comprehensive view of your business’s financial position, detailing assets, liabilities, and equity. It’s a key document for understanding your business’s overall financial health and solvency.

A Balance Sheet is a financial Polaroid, capturing your business’s essence at a specific moment.

Like a snapshot, it freezes assets, liabilities, and equity in time, revealing the financial landscape.

Assets stand as monuments to your achievements, liabilities as bridges to cross, and equity as the horizon of possibilities. It’s a visual tableau, providing a singular, detailed glance at your business’s health and structure.

This frozen frame empowers decision-makers, offering a clear understanding of resources, obligations, and net worth. In the ever-moving business landscape, the Balance Sheet serves as a timeless portrait, aiding strategic navigation through financial landscapes.

Where to get started?

To assist you in creating a robust budget for your business, here is my FREE Budget Workbook.

This workbook will guide you through the essential steps of creating financial projections, ensuring that your business plan is a vision and a well-grounded strategy for success.

Remember, while launching a business might be thrilling, pay attention to the importance of financial projections. They are the compass that guides your business through the complexities of the market, helping you make informed decisions and navigate toward sustainable growth.

So, let’s embark on this financial journey together and let’s get started!