Financial Projections Guide a Business or Project Toward Success

Financial projections are basically the business plan explained with numbers. Generally CBS provides forecasts and projections in two forms. The first is a Pro-forma which is similar to a financial summary and the second is a more detailed format based on Generally Accepted Accounting Principles (GAAP), recognized worldwide.

  • Identify, define and quantify assumptions and values that are based on business strategies and are most meaningful to the projections. These assumptions are documented and organized by categories such as pricing, costs, capital expenditures, revenue, customer universe, customer growth, payment terms, etc.
  • Reviewing multiple funding scenarios allows the opportunity to compare the effects of each. For example, the speed of the roll-out strategy may be handicapped with one strategy but quicker with an approach that requires a larger initial capital infusion. Long term this strategy may quickly provide a larger market share thus increasing income faster than a more conservative approach.
  • It is extremely important to ensure the business raises enough capital to withstand cash flow demands such as slow receivables, inventory replenishment, unplanned equipment repair or purchases, larger than normal quarterly tax payments, and other events. Cash flow can easily spike for not only anticipated reasons but also uncalculated causes. All cash flow projects and calculations are completed to reflect the potential monthly effect of each.
  • Most often printed financial projections are presented monthly for the first three years and then in an annual yearly summary for the remaining two years. On some occasions, five year forecasts are reported in monthly detail.
  • Allocating the proper amount of resources to a given function assists in determining the value of each function toward the bottom line. Generally, operating expenses are grouped by line item functions such as Sales and Marketing, General Administration, Research & Development, Procurement or Operations. This detail allows for comparing department/function expenses as a percentage of overall expenses.
  • Key ratios such as Liquidity, Profitability and Financial Leverage, amongst others, allow the comparison of benchmarks to other companies in a similar business.