HOW TO START FINANCIAL PROJECTIONS FOR YOUR STARTUP

WHY DO YOU HAVE TO MAKE FINANCIAL PROJECTIONS IN A STARTUP?

If you are an entrepreneur, you may not see the point of spending many hours making financial projections for more than a year. And it is understandable since, in these numbers, there is usually more art than science, and you could be using that time to increase your sales. First, however, you must make financial projections for startup. I'll explain why: in the process of making the projections, you will have a more concrete idea of ​​the real business and growth possibilities, the margins and the needs you will have.

Making financial projections is a fundamental exercise to discover our project's weak points and prepare ourselves. If you anticipate the possible problems you will face, you can make the necessary adjustments to overcome them. By making financial projections, you commit yourself and your team to making the necessary efforts to achieve the established goals. This commitment is essential for investors. Making detailed financial projections is a tool for planning and running your business.

HOW ARE FINANCIAL PROJECTIONS MADE?

To make the projections, it is assumed that you have already determined what need you are going to cover, who you are directing your product to, how you will get your product to potential customers, what needs and expenses you will have when developing your activity, what prices your product or service will have, etc. In other words, you will make the financial projections at the end once you are clear about your business model. Or you can also contact Maven Business Plans to get a financial projection plan for your business startups.

START WITH COSTS AND EXPENSES

The most realistic way to know your profit margin is to start by calculating expenses and costs. Remember to list all your fixed expenses needed to run the business, such as rent, supplies, utilities, salaries, etc. Also, create another list with the costs of producing and selling your product, such as production cost, customer acquisition cost, sales commissions or customer service, etc. In marketing, legal advice and insurance items, you'd better calculate double or even triple what you had anticipated. These expenses tend to increase before you know it, and unforeseen events, which always exist, are not cheap.

DO NOT FORGET TO ACCOUNT FOR ALL EXPENSES

One usually thinks in the abstract about the expenses necessary for the project, but when we detail them individually, we find many items we have not considered. Therefore, it is important to detail all expenses, from administrative and telephone expenses to participating in fairs and pens. To guide you, you can consult statistics of expenses according to industries. When making growth projections, remember that as business volume increases, fixed expenses decrease proportionally, but variable expenses remain stable.

CALCULATE YOUR MARGIN PER UNIT

Each unit's production cost must be half or less of its selling price. Remember that operating costs are usually always higher than expected. If you make too optimistic projections, you will not have enough margin and these expenses will leave you with nothing. Therefore, my recommendation is that you be conservative.

ESTIMATE SALES ACCORDING TO SALES CHANNELS

When making sales projections, you must talk to your entire team. They are the ones who will do a fundamental part of the work and will be able to tell you if your expectations are realistic or not. Establishing sales projections with them will help you get their commitment to the established goals. If, in the beginning, it is only you, the projections will be essential to estimate the expenses and margins you will have when the volume of business grows. It is important, for example, to know how many staff you need for each client (this data is obtained by dividing the number of clients by the number of workers).

BE AGGRESSIVE BUT ALWAYS DOWN TO EARTH

Most startups have very aggressive projections based on ideal returns. Do it, too, since the only way to fly high is to propose it. But at the same time, make other financial projections from a more conservative and less optimistic point of view. The best thing will be that you are prepared for different scenarios.

HAVE CASH FLOW UNDER CONTROL AT ALL TIMES

This is one of the basic responsibilities of every CEO since you have to constantly find the balance between the cash that comes out and the income. Two golden rules: Never lose sight of money and take care of your box. Cash is King!

ASK YOUR INVESTORS FOR 25% MORE THAN THE EXPECTED EXPENSES

Do not wait to desperately ask for more money until you are in the red. You may not get it, in addition to the fact that a situation like this does not transmit security to your investors. So, once you know how much money you need to borrow to maintain positive cash flow, add 25% more. It is also important to develop relationships with banks at all times, not only when you need money but also when you don't. Try to open lines of credit when you do well in your business since the banks will surely deny them when you need them.

CONSTANTLY REFORMULATE YOUR FINANCIAL PROJECTIONS

As the future is unpredictable, you must adjust your projections periodically. However, investors will usually be happy if you do quarterly reviews reflecting the prospects for profit and growth as the startup develops. These upgrades are strategically vital because they will allow you to always be one step ahead of events.

Making financial projections for your startup is tedious and is not a guarantee of success. But you should still do it since it will significantly reduce the margin of error and improvisation, it will allow you to consider possible scenarios for the company's growth, and it will show investors that you know what you are proposing and that you are committed to working to make those projections real. Moreover, with time and experience, you will learn to make increasingly accurate financial projections.