Tag Archives: Cash Flow Statement

3 Main Components of Financial Projections

3 Main Components of Financial Projections from The Startup Garage

3 Main Components of Financial Projections

Successful entrepreneurs not only have visions in their minds, they also translate their abstract visions into concrete financial projections. Financial projections enable entrepreneurs to set targets for their goals, control costs and predict problems. Balance sheet, profit-loss statement, and cash flow statement are the 3 main parts of financial projections and should be included in any business plan:

Balance Sheet

It is a summary of the financial balance of a company. It looks at the company’s assets, liabilities, and equity. Assets are economic resources. They include tangible and intangible things that can be owned and controlled to produce value. Liability is defined as an obligation of an entity. To settle this obligation, an entity can transfer assets or provide services. Equity is the residual claim of investors in assets after all liabilities are paid. Assets, liabilities, and equity are listed on the balance sheet, and the difference between assets and liabilities is the company’s net worth. The balance sheet is a snapshot of a company’s financial condition, and it gives decision makers a solid understanding of the company’s resources and debts.

Profit-Loss Statement

It indicates how revenue, after charging against costs and tax, is transformed into profit. This projection vividly interprets the business’ entire operating process into financial figures. These projected figures might not largely match the company’s actual performance. But they, to a certain extent, give entrepreneurs a general idea of how profitable their businesses could be. The profit-loss statement helps entrepreneurs set goals for both short term and long term periods, and it also alerts entrepreneurs to potential costs that could incur.

Cash Flow Statement

It essentially indicates the flow of cash in and cash out of the company, and it has been a very useful tool to determine the business’ short term viability. Cash is the life blood of a business.  Payroll and immediate expenses have to be paid in cash. Whatever scale a business entity is, it can go bankrupt if it runs out of cash. Therefore, the cash flow statement is crucial for a startup owner to judge the company’s financial health. It is also important for investors and lenders to judge the company’s potential return and its ability to repay. It as well tells how much startup capital the company will need.

Financial projections include balance sheet, profit-loss statement, and cash flow statement. They inform their readers the company’s financial condition. This information is crucial important and is in a professional business plan. Therefore, by having a business plan at hand, one can always examine his/her business’s financial health, and present investors or partners with valuable data.


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Top 5 Benefits of Creating Financial Projections

Top 5 Benefits of Creating Financial Projections from The Startup Garage

Top 5 Benefits of Creating Financial Projections

An old Woody Allen joke resonates with financial modelers and forecasters: “If you want to make God laugh, tell him your future plans.” We all know that financials projections are based on assumptions that likely never come true.  Yet, putting together the financial information for your startup might be one of the most important and eye opening experiences before the launch date. Sales projections for an existing business are derived based on past sales figures and reports as well as statistics regarding other known pertinent internal and external factors. Yet when projecting for a startup, all previous sales history is non-existent and therefore, there are some arbitrary fundamental assumptions that need to be made. Almost every experienced entrepreneur will tell you that financial projections are absolutely necessary for any launch process. Below are 5 of the major benefits that novice entrepreneurs will enjoy simply by spending time projecting hypothetical financial projections for their business plan.

  1. You will be able to show potential stakeholders that you have a levelheaded grip of reality and your expectations are practical. Possible creditors or investors are most certainly looking for realistic financial expectations in your business plan.  Creating financials that are not too optimistic or too pessimistic will earn the respect of potential investors and give them confidence in what you are presenting.
  2. You will be able to price goods and services more accurately and competitively. Lining up costs with revenues will provide you with an idea of your Break Even Point. This knowledge will be essential when it comes down to setting up an appropriate price to charge. If you charge too little you will make an inadequate profit, or if you charge too much you will end up alienating and losing customers.
  3. You will be able to trim costs strategically. Once you have categorized your projected expenses you will see emerging spending habits associated with your business. Noticing excessive spending before it has occurred will force you to create innovative money saving strategies to create value with less capital. Paying attention to areas that you are overspending can improve your bottom line. For example, if you anticipate spending money on outsourcing, you might notice that this expense could be eliminated by adding the duties to some of your employees. If you considered business lunches, those might have to be transformed into coffee meetings instead. In other words, consider if each expense category is sufficiently helping your business to generate income. Depending on your answer, you may need to take preventative actions.
  4. You will be able to pace your growth more effectively. At the startup point you will not have any idea of when you might need to hire more employees, find suppliers on a bigger scale or extend your services to other markets. In reality, you will consider expansion when sales and profits are growing consistently for a several month period. At startup you need to be prepared for that possible expansion and be able to recognize and respond to it accordingly.  Creating a cash flow statement will allow you to consider corresponding income to expenses and will not leave your business grasping for cash during a crucial point of early development.
  5. You might be able to reduce taxes. Often startup businesses don’t know how to take advantage of controlling their tax spending. If your projections predict that you will be making profits by the end of the year that means that you will be paying taxes. So, if you plan on spending for a company vehicle, the best time would be exactly before the end of the tax year, so you can take advantage of the tax deductions. Businesses that are sloppy about predicting their expenses are willing to miss dollar saving tax opportunities. Financial projections and following up on actual bookkeeping will help you decrease the tax spending of your business.

Lastly but probably most importantly your financial projections are a way for your business to set goals and to try to reach them. Your employees are all working towards a clearly outlined financial goal and reaching it will only provide satisfaction for all involved.

Whether you have a question about Financial Projections or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

5 Rules for Your Cash Flow Plan

5 Rules For Your Cash Flow from The Startup Garage

5 Rules for Your Cash Flow Plan

Critical to your success, cash flow.

Create an effective plan for positive cash flow with five basic rules. Every business owner should have an understanding of his or her cash flow situation – sales minus expenses. Positive cash flow is critical to continuing business operations.

  1. Forecast realistic monthly sales. It is very important that you don’t optimistically estimate sales figures. Base these numbers around historical data or worse-case scenario figures. The estimates set should be easily attainable. This is necessary to ensure the business creates enough revenue to continue to operate.
  2. Plan for timing of receivables. Sales made with payment terms can take weeks or months to become available cash for operations, while cash and credit card sales are immediately accessible. Depending on your business, payment terms should be set and plans should be made so that operations will not be negatively impacted by this fluctuation in timing.
  3. Consolidate base operating expenses. Your business will have a set of predictable monthly operating expenses, often including rent, payroll, and utilities. These should be consolidated into one operating expense to be the baseline for the amount of cash that must come in to keep the business running.
  4. Keep cash available for growth. Businesses often fail because they can’t afford the capital necessary to support growth when the opportunity arises. Project the expenses that will be required when an increase in sales occurs. This could include equipment or additional employees. Cash from the new sales will unlikely be available before costs are incurred for expenses, so be sure to have this on hand.
  5. Recognize and plan for the known unknowns. Scenarios may develop for your company when cash is needed in order to capitalize on an unusual opportunity. Create a comprehensive list of possible unknowns and their associated expenses. Every cash flow forecast should include a contingency plan with funds to cover an unexpected situation.


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