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What are financial projections for?
Financial projections are a forecast of your business’s profit and loss, balance sheet and cash flow, usually by month for the first year or two and by year after that. They turn the story in your business plan into numbers: what you will sell, what it will cost, how much cash you need and when you can pay it back.
Who reads them changes what matters most. Built properly, one set of projections answers every reader:
- A bank: can the business service the loan with room to spare, and what security is there?
- An investor: how fast it grows, what margins it reaches and how far their money takes it.
- A grant assessor: does the project budget tie to the plan, and is your share of the cost funded?
- You: when does cash run lowest, and what has to go right for the plan to work?
What do good financial projections include?
Take a gym planning a second site. Members drive everything: 400 at opening, then 60 more a month up to 1,200, each paying $22 a week. Staff follow members, rent is fixed by the lease, and the fit-out is paid for before the first member walks in. Built that way, a bank can see the month cash bottoms out and when the gym starts covering its repayments.
Strip away the formatting and every credible set of business plan financial projections has the same parts:
- Revenue drivers: customers, volumes and prices, and why each one grows. Not just “sales up 20% a year”.
- Costs that follow those drivers: staff by role and start date, rent, suppliers and marketing.
- Capital spending, such as a fit-out, equipment or vehicles, with its depreciation.
- Funding: loans with their interest and repayments, equity raised and grants received.
- Working capital: when customers pay, when you pay suppliers, the stock you carry and the GST in each BAS.
- A linked profit and loss, balance sheet and cash flow, so projected profit becomes a cash balance you can trust.
- The measures readers check: gross margin, break-even, cash runway and, if you borrow, debt service cover.
- One sheet of assumptions that says where every number came from.
How far out should projections go?
Three to five years suits most business plans, and 5-year financial projections are a common ask from investors. Lenders look hardest at the first few years, when repayments start. Long-lived assets, such as a farm, a hotel or a solar farm, justify ten years or more.
Go monthly while the business is new or cash is tight, so a slow start or a seasonal dip shows up. A café’s first winter or a builder’s gap between contracts can vanish inside an annual total. Once the business settles, quarters or years are enough.
Match the detail to what you can support. A start-up with no history is better served by a few honest drivers, such as customers, price, churn and headcount, than by a hundred lines it can’t back up. An established business can build from its own accounts, line by line.
Which mistakes sink financial projections?
Readers rarely argue with the arithmetic. They argue with the assumptions, and these are the ones they catch first:
- The hockey stick: flat history, then 50% growth a year, with nothing in the plan to explain it.
- Sales that double while staff, marketing and stock stay flat.
- No wage for the founder, or owner’s drawings that never appear in the cash flow.
- Profit with no cash: no allowance for customers paying late, stock on the shelves or GST owed to the ATO.
- Costs held at today’s prices while revenue rises with inflation.
- No downside case. Show what happens if sales come in 20% lower, and when the cash would run out.
- Numbers with no source. Tie the first year to your actuals, quotes and leases, and label what is an estimate.
Can someone build my projections for free?
A free financial projections template hands you blank rows and leaves the hard part to you: deciding how each line should work, linking the statements, and finding the error when the balance sheet won’t balance.
Tell us about the business and what the projections are for, and attach what you have: last year’s accounts, a budget, supplier quotes, a lease or your pitch deck. We build them free in Excel. Say they are for raising debt and the model adds covenant tests, headroom and debt capacity; for an equity raise, sources and uses and the share register.
Ask for your history too, and your last three years of accounts sit beside the forecast, with the forecast’s opening balances checked against them. Pick from five levels of detail, from a one-page view of the whole business to every driver built up.
You get the three statements, scenarios, a dashboard and a valuation, monthly, quarterly, half-yearly or annual for up to 30 years. Every input sits in blue with its source. Every model is checked to balance in every period and reviewed by our team before it reaches you, usually within the hour.