Burke Workshop Doing Financial Projections
Doing Financial Projections
What You Need
← Clear ideas about the purpose and audience for your projections.
← Understanding of the key drivers of financial results for the business.
← Some knowledge of accounting & financial statement analysis:
← Skill in using spreadsheet software -- such as Excel
← Creativity, attention to detail, and good judgment.
← A lot of time.
Some Warnings
O Most people starting new businesses are much too optimistic about the future financial results of their business. Their energy and enthusiasm cloud their judgment. They underestimate the time it takes to get things done, and how much things will cost. Over-optimistic expectations often lead to underestimating how much money they need to finance initial losses.
O Once a business really gets going (in Year 2 or 3), doubling the size of the business each year is about the maximum a good CEO really can achieve. Even growth that fast (double every year) is extremely difficult to manage. Most successful businesses do not grow faster than 100% per year, nor do they need to.
Getting Started
O Financial projections should include the following kinds of final “output”:
← Income Statements
← Balance Sheets
← Sources and Uses of Cash Statements (Cash Flow Statements)
O The invention of spreadsheet software has made financial statement models easy to create and even easier to play with. Follow this link for a simple projection model template.
O In practice, though, you will likely have to build your own income statement model. The key drivers often are unique to the particular situation. You can use the template model, however, to help calculate Balance Sheets, Sources and Uses of Cash, plus do some Statement Analysis – just by inputting your custom income statement, and making some simple assumptions.
O It is usually best to do monthly projections for the first two years, then quarterly
What You Need
← Clear ideas about the purpose and audience for your projections.
← Understanding of the key drivers of financial results for the business.
← Some knowledge of accounting & financial statement analysis:
← Skill in using spreadsheet software -- such as Excel
← Creativity, attention to detail, and good judgment.
← A lot of time.
Some Warnings
O Most people starting new businesses are much too optimistic about the future financial results of their business. Their energy and enthusiasm cloud their judgment. They underestimate the time it takes to get things done, and how much things will cost. Over-optimistic expectations often lead to underestimating how much money they need to finance initial losses.
O Once a business really gets going (in Year 2 or 3), doubling the size of the business each year is about the maximum a good CEO really can achieve. Even growth that fast (double every year) is extremely difficult to manage. Most successful businesses do not grow faster than 100% per year, nor do they need to.
Getting Started
O Financial projections should include the following kinds of final “output”:
← Income Statements
← Balance Sheets
← Sources and Uses of Cash Statements (Cash Flow Statements)
O The invention of spreadsheet software has made financial statement models easy to create and even easier to play with. Follow this link for a simple projection model template.
O In practice, though, you will likely have to build your own income statement model. The key drivers often are unique to the particular situation. You can use the template model, however, to help calculate Balance Sheets, Sources and Uses of Cash, plus do some Statement Analysis – just by inputting your custom income statement, and making some simple assumptions.
O It is usually best to do monthly projections for the first two years, then quarterly