business plan financial projections example
A company seeking capital can not afford to underestimate the importance of financial and business projections. A business financial projection is simply the forecast sales and revenue to the lender. This information is important because it is a key indicator of its ability to repay a loan.
If you are uncertain about the financial projections and how it relates to your business that is better to hire someone who knows. Most lenders want to see a projection of three to five years. There are 14 different items to include and fully support your financial projections. With these various elements is better to give one months breakdown by month for the first year, a quarterly for the next two years and an annual breakdown of the last two years is being planned.
The different elements to include in its projections are estimates of sales revenue, administrative costs, production costs, selling costs, capital expenditures, gross margin by product line, increasing sales of the product line, interest rates on debts, the tax rate on income, bills collection plan of receivables, accounts payable schedule, inventory turnover, depreciation schedules, and utility or depreciation of assets.
The projection of income allows the owner / manager to develop a forecast of the amount of revenue generated each month and for the business year, based on industry forecasts bearable monthly levels of sales, costs and expenses. In determining the total net sales will determine how many units of products and services it expects to sell at prices that are projecting. Make sure to think about what returns, allowances and markdowns can be expected. Selling expenses needs to be calculated for all products and services used. Sure that when determining the costs of sale do not forget anything as commissions paid to sales representatives, transportation costs or direct labor costs.
Gross profit for the full cost must be subtracted from the sale of total net sales. To get your gross profit margin gross profit divided by total net sales. This is expressed as a percentage of total sales or revenues.
In making its projections of financial affairs, there are five elements that will ruin the accuracy of their projections, and harm your chances of being approved for business financing. The first is wishful thinking to think or be overly optimistic about its sales potential. Ask yourself: "Is it possible to achieve the sales levels that this forecast?". A good example is that a sales team can only visit a certain number of customers each week or a factory can only produce a certain quantity of goods each turn. Be sure to keep projections realistic and most importantly it is based supportable evidence. It is imperative to ensure that your sales assumptions are linked directly with the sales forecast or contradictory information itself. Most lenders "by the numbers", so if the numbers do not match, you get decreased. A good example of this is to say it expects increased sales in a market that is declining. That simply makes no sense.
Another thing not to do when projecting your business finances is to spend much time refining the forecast. Try to avoid alterations to the target numbers once they are set. Many owners neglect to ask for opinions of sales people who know the intentions of the buyer on what they think the sales projections should be. It is important to ensure that your sales team agrees with no sales target to be established. A fatal mistake made by other business owners when working on financial projections are not getting information on projections of an accountant.
About the Author:
Corey Pierce is the CEO of BusinessFinance.com a business capital search engine with the funding criteria of 4,000+ sources for business capital. Visit www.businessfinance.com to search the funding directory for free.
Article Source: ArticlesBase.com – A Successful Business Financial Projection Can Be The Key To Securing Financing
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