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Financial Projection

Planning out and working on your company's financial projections each year could be one of the most important things you do for your business. The results--the formal projections--are often less important than the process itself. If nothing else, strategic planning allows you to "come up for air" from the daily problems of running the company, take stock of where your company is, and establish a clear course to follow.

Regular planning also helps your company deal with change, both inside and outside the company. By constantly reevaluating your company's strengths, markets and competition, you're better able to recognize problems and opportunities. You can react to new developments, rather than simply plugging along.

But what keeps it from just being a number-crunching exercise? Here are three good reasons to project your financials:

  • The financial plan translates your company's goals into specific targets.
  • The plan provides you with a vital feedback-and-control tool.
  • The plan can anticipate problems.

Depending on your company's situation and objectives, you'll need to develop several types of projections and budgets:

  • A model that projects either the current year or a rolling 12-month period by month.
  • A long-range, strategic plan looking out three to five years.
  • Budgets, typically covering one year.
  • Cash forecasts.