how to make financial projections for a startup

This can be especially valuable if you have a lot of industry data, or you’re a startup that doesn’t have existing sales to build from. However, this relies on a lot of averages and trends will be generalized. Financial projections can also be used to validate the business’s expected growth and returns to entice investors.

How To Create Your Financial Projections

how to make financial projections for a startup

Plus, by changing variables in the financial model—such as altering product pricing or team headcount—you can see how these factors will affect the projected revenue and expenses. It makes sense to start with expenses when creating a financial projection, once you have a clear view on headcount. You generally have more control over them and because of that, they’re accounting services for startups easier to project accurately. Now let’s take a look at the step-by-step process of creating a financial projection for a startup. Firstly, you can take what’s known as a top-down or a bottom-up approach to projections. For a sales-led company, a sales capacity model can help plan your top-line by using sales rep performance to forecast future bookings.

Rely on Past Performance

how to make financial projections for a startup

After accounting for all of your operating costs, subtract this from your gross profit to calculate your actual profit—otherwise known as net income (or profit). Operating expenses can be calculated based on your expense budget. Comparing your actual financial statements to your projections is referred to as variance analysis. With this analysis, you’ll be able to see if your business is consistently falling short of your projections or surpassing them.

  • You can compare this to forecasted estimates or scenario planning data.
  • Present yourself professionally and earn trust from potential partners or investors for your venture.
  • Of course, you can also increase prices or reduce your production costs to lower the BEP.
  • There are also a few best practices to follow in order to get the most from all the financial planning you’re doing.
  • The question is more about how many trucks do you have, how many miles per day can each truck drive and what price will you be able to earn per mile.

Project your spending and sales

Most investors will be able to spot a fanciful projection from a mile away. On the SEC's website, check the public Forms 10K of competitors or companies in the same industry and compare net revenue. If there are no publicly listed companies to provide financial comparisons, perhaps check with the potential investment banker or capital provider.

Even if we hate doing financial projections, they are useful; they give us insights into the short and long term of our business that we couldn’t figure out otherwise. They allow us to adjust and optimize our strategy in a way that is actually monetarily feasible. You can also find industry data at StatsCanada and  Canada Startups.

Many entrepreneurs like to have enough cash for 90 days of operations (including cash in the bank and/or room on their line of credit). Also, create a sales forecast and use it to project anticipated monthly revenues. A careful study of your potential market will help you arrive at realistic numbers. In the first category, Knowledge, is the feedback coming from the hands-on experience that the person you’re talking to has.

Michelle Alexander is a CPA and implementation consultant for Artificial Intelligence-powered financial risk discovery technology. She has a Master's of Professional Accounting from the University of Saskatchewan, and has worked in external audit compliance and various finance roles for Government and Big 4. In her spare time you’ll find her traveling the world, shopping for antique jewelry, and painting watercolour floral arrangements. Compare margins to industry benchmarks or similar companies. COS may be higher at the start, but it is important to show higher margins over time as efficiencies are gained. Take a step back from the detail and reflect on the total revenue result.