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Start-up Business Financial Projections Explained

Coffee mug saying 'begin'; Numberslides explains how start-up business financial projections work

Every start-up business needs financial projections. They provide the numbers that back up your business plan. Here, we explain how start-up business financial projections work. We also look at why it’s important that you find the right solution to your financial forecasting needs.

What Are ‘Financial Projections’?

Financial projections are forecasts for your business’s financial health, including planned profit and growth. This could be projected over the next one, two, or five years’ time. Financial projections help you as a business owner, or start-up founder, to better understand what money (funding) you need, so you can get your business off the ground.

Why Are Financial Projections Important?

The two most obvious and important reasons are: 

  1. Financial projections help secure funding
  2. Financial projections help you assess the viability of your business

1. Financial Forecasts Can Help Secure Funding 🔒

As a general rule, start-ups need funding. Most start-ups and businesses will at some point, require an injection of cash to keep things going or to hit a milestone of self-sufficiency. There are plenty of investors looking to invest in start-ups that are changing the world. Reviewing financial forecasts, profit projections, and cash flow projections is an important part of due diligence that an investor will perform when assessing your start-up as a potential investment. Without a solid financial forecast, you will struggle to find anyone willing to invest substantial amounts of money in your idea.

2. Financial Projections Help Assess the Viability of Your Business ✔️

Just as investors need to see where their investment is going, so do you need to understand where your business is going. Is your business model viable? Is your market big enough? Do you need more cash? Are you able to deliver a sizable return on investment, or is your idea not really ready for the market yet? Financial projections force you to look at the numbers of your business and check that it all makes sense.

What Are the Challenges with Start-up Business Financial Projections?

From overwhelming financial terminology to hours of endless model adjustments, building start-up business financial projections can present a range of challenges. Here are our top three relatable hurdles that many entrepreneurs have faced.

Figuring Out Start-up Business Financial Projections Can Be Scary

Trying to work out if your business idea is good or not can be pretty intimidating. Trying to assess if your existing business is going to be profitable in the following years can be downright scary. Financial projections are often fiddly to produce and a nightmare to understand.

As a founder of a start-up or owner of a business, you may be an expert of a particular field and have extensive knowledge that you can bring to your business. However, just because you are starting, or running, a business, it doesn’t necessarily mean you have to be good with numbers. We’ve worked with plenty of brilliant founders who are anxious about the economics of their business and have absolutely no clue about how to manage their accounting. This is normal, but what happens next?

Getting Financial Projections for Your Business Can Be Costly

Few founders or business owners have the money to bring in a team of colleagues or consultants to assist with the financial modelling or management of the business. That means that you, as the CEO, are left without team members, experts or even a CFO (Chief Financial Officer) to guide you on the finances of your business. It’s your responsibility to count every penny coming in and out of your business. It’s your responsibility to know when cash will be available to spend, and when salaries or supplier’s bills need to be paid.

Constantly Adjusting Financial Forecasts Can Be Time Consuming

Financial forecasts aren’t set in stone. They are a snapshot of your financial intentions, in some future time. They are vulnerable to the ever-changing market conditions, and the multitude of changes and challenges that your business will face. As a result, you need to be able to adjust your financial projections regularly. The Excel template that you’ve found won’t always allow you to do so, and the advisor you’d like to use will most likely have to start again on your financial model to give you the most accurate up-to-date projections.

We, at Numberslides, are accountants and lawyers by trade, so trust us when we say we’ve seen some truly beautiful spreadsheets in our time. We’ve found that very many founders and business owners become consumed and overwhelmed with their spreadsheets. There are so many variables that can affect your business plans. A simple late payment in or out can really knock your projections sideways. 

Start-up Business Financial Projections Are Different from Established Business Projections

If you’re a founder with a start-up, your business financial projections are probably going to be created from scratch whilst if you an established business, you will have some operating data – how much money you have made and spent which you can then project forward. Sure, there are templates and other business models you may wish to copy, but your business is unique. This means your path to profits and financial projections won’t be the same, even if you’re one of 1,000 cafes in Manchester. The challenge for start-ups is taking a blank template and building your financial projections from nothing. Established businesses are fortunate in that they are able to reflect on previous years of business and use their financial history as templates to build next year’s projections.

If you’re building a financial projection for your start-up, then without any historic data, you’ve got to go to the fundamentals of your business. 

Key questions you’ve got to answer include:

  1. What is driving your revenue?
  2. How do different aspects of your business build into the revenue?
  3. Does your market exist? If so, how big is the size of the market?
  4. Can you take a part of that market? Are you able to meet an existing or slightly new need?
  5. What’s your cash shortfall from day one to the day you make money? 
  6. How are you going to manage your cash shortfall? Do you need a loan? An investor?

Once you start to explore your financial projections, you should realise that financial forecasts are not a check box exercise. Instead, they are the first step in a long path to securing funding, launching your business, finding your first customers, and eventually making a profit to sustain your business.

Use Numberslides for Your Start-up Business Financial Projections

Numberslides offers an inclusive platform where you can add your numbers and build your own financial forecasts yourself. The software is coded to be simple and straightforward. You simply fill in the boxes, adjust a few details, and our platform generates the reports you need to understand your business’s finances. You can also learn the meaning behind the jargon as you work through your model, and go back and make changes to your numbers if your end result isn’t what you expected. For a founder starting on a blank slate, Numberslides is perfect for building your start-up business financial projections and taking your business plan from zero to one.

Build pitch-ready forecasts now

Tags: cash flow forecasts, financial forecasts, start-ups


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