Set Your Business Up for Success With Financial Statements
If you own any type of company, creating realistic financial projections is a crucial administrative task for success. You must know how much money you plan to earn each year so you can set a timeline for growth and accomplish the goals outlined in your business plan. Here, attorney James M. Braden presents four things you must know about financial projections and how to create one to enrich your company.
Financial Projections Are Vital
Investors look at financial projections to determine if a business is worth funding. Ultimately, your projection should show potential investors that their money will be put to good use. You must outline how they will see a return on their investments. A financial projection determines how you grow your business financially, and because your goods and services may change over the years, it is important to revisit and revise the document as necessary. NetSuite reports that 25% of small businesses revise financial projections annually to increase their chances of success.
Your financial projections are also required in your annual reports, which most businesses must submit annually alongside their taxes. Failing to submit these reports can cost a hefty fine, cause you to lose your liability protection, or even prompt the state to dissolve your business.
Financial Projections Are Straightforward
Financial projections should only include facts about your company, so you don’t need to be creative to draft an effective document. Include documents that highlight the current state of your company’s financial health. Determine the exact cost of your expenses. This information gives you a basic idea of how your company will fare in the future, but make sure you plan for contingencies because businesses rarely have smooth growth with no setbacks.
If this is all new to you or if you want to better understand the numbers involved in your finances, then consider going back to school. An accounting degree online furthers your career and helps you to really understand the reports you run for your business. Plus, taking online classes means you can fit them into your already busy schedule.
Certain Statements Must Be Included in Financial Projections
Every financial projection must include two specific statements. Harvard Business School explains that the Projected Income Statement gives a brief summary of your expected earnings over the next year. It also provides information about your expenses so you can see your forecasted profits and provide this detail to financial backers.
A financial projection should also include an Income (Profit and Loss) Statement. This document analyzes your profits and losses from a specific period such as one business quarter. You can then use this information to create a realistic projection for financial health for the next few years.
Software Helps Create Financial Projections
There are many types of budgeting and forecasting software that can help you create a realistic financial projection. Using these software applications makes it easy for you to input current information about your budget so you can better understand your company’s financial status and guess how the performance will change in the future.
Budgeting software allows you to allocate funding for advertising, building inventory, paying employees and filling orders. Knowing your current budget allows you to see how much money you must make as the business grows to continue meeting the demands of your customers. Your budget will change as the company grows, and having the information entered into a software program allows you to easily change how you disperse funding as needed.
Forecasting software gives you a glimpse of how your business will perform in the future. It analyzes your marketing returns and the cost of your products to ensure your company is operating effectively. You can change these numbers by adjusting your marketing strategy, allowing you to see the most beneficial plan for growth.
You can also use marketing automation software to get better ROI. This is a good one to consider since it includes marketing automation alongside real time behavioral data based on your customer’s online footprints to give you the kind of data you need to make your marketing efforts more effective.
Use Projections to Benefit Your Business
Setting financial projections is essential for growing your business and giving your company the foundation it needs for success. Knowing this information about financial projections helps you create a strong document that benefits your business. This document can help you in many different ways, from organizing more efficient business solutions to soliciting financial support and submitting your annual report.
If you have questions regarding your legal obligations regarding business finances, contact attorney James M. Braden today!