Why Are Company Projections Important and How Can You Do It?

By
Sami
November 4, 2021

Finances are an important part of the business. When startups first develop their products or services, they need to project and analyse their finances to determine if their idea is viable or not.

A startup projections platform can help startups understand where the company could potentially be in:

  • 1 year
  • 5 years
  • 10 years

Let’s see why coming up with projections is a smart option for startups.

Why Company Projections are Important

Financial forecasts are an important part of the business. When a company is able to forecast their sales properly, they’ll be able to:

  1. Create goals and milestones that allow them to reach their long-term financial objectives and forecasts.
  2. Build confidence in the company’s future that can lead to raising capital for the business.
  3. Better understand what resources are necessary to have and when they need to have each resource.

Planning for the future is a smart tactic for businesses. While it may seem premature to plan for the future, it’s the only way a business can understand its needs and how to reach its goals. There should be some flexibility involved, too.

Your sales may soar, and this means your business will need to adapt to changes faster.

Every business, from a startup to a 100-year old enterprise, can only predict the future with a small degree of certainty. Projections are not plug-and-play, so it’s important for owners and management to:

  • Use forecasts to guide their monthly activities
  • Use forecasts to budget
  • Compare forecasts to actual performance and adjust as necessary

Forecasts should not be overwhelming, but they should provide some guidance for your business. Learning how to make a startup’s projections is an important part of the business.

How Startup Projection Tools Can Help You

What type of projections are you planning out? There are a variety of projection types, and depending on your business, it can be users, sales, or others. But the most important projection, and often the one that people consider first, is the financial projections.

Finances dictate everything about a business’s future, from how many employees you can hire to how aggressively you must be to reach your revenue goals.

A quick way to determine financial projections, aside from hiring a professional for the matter, includes:

  • What is the size of the market? You can determine the size through proper market research.
  • How many users or customers are you planning on capturing during a certain time period in a percentage? You’ll want to be conservative in your assessment.
  • Calculate, based on the percentage in the last step, how many sales or users you would capture.

In a real-world example, let’s assume that the top competitor has 3,000,000 users and you want to capture 2% of this audience. The sum would be 60,000 users that you plan on acquiring. If each user is valued at $100 annually, this means that you can expect as much as $6 million in revenue.

The figure may be higher or lower based on what type of product or service you sell.

Of course, this figure doesn’t account for costs that you may or may not be interested in projecting. Let’s assume that you have 10% profit margins because you have to pay for:

  • Advertising
  • Employees
  • Onboarding, etc.

You can then project $6 million in revenue and $600,000 in profits. These are all projections that can help you create a roadmap for your business.

Create charts, graphs, and spreadsheets to have an overview of your projections. You can create projections for:

  • Income
  • Cash flow
  • Balance sheet

Roadmaps allow you to plan everything out, from being able to determine where to spend more money to where to reduce your expenditures. Projections take time, and if you’re just opening up your doors, you’ll be at a disadvantage because you don’t have a history that you can rely on to forecast your sales.

But with each year (and even month) that goes by, you’ll have a better pulse on the market and what you can expect from your sales.

Businesses can use a startup projections platform to better determine how to create projections for their industries. Since every business and market is different, you may find that you won’t be profitable for two or three years, or you may find that the market is too small and entering it isn’t viable.