You’re applying for a loan or line of credit: Again, banks or other financial institutions are interested in the financial health of your business.

No one will invest in a business without a financial projection that outlines variables such as expenses, revenue, and growth patterns.

You’re hoping to attract investors: When looking to invest in a business, investors typically look for financial viability.

You’re creating a business plan: One of the first things potential investors or banks want to see is a financial projection for your business, even if it isn’t operational yet.

Here are a few situations that would call for financial projections: What are financial projections used for?įinancial projections can be used in a variety of ways, but they’re usually used to attract investors or when applying for a bank loan or line of credit. Long-term projections: Long-term projections typically cover the next three to five years and are usually used when creating a strategic plan, or for attracting investors. Short-term projections: Short-term projections usually cover a year and are typically broken down by month.

You can create both short-term and long-term financial projections, with most business owners using both types of projections: Similar to creating a budget, financial projections are a way to forecast future revenue and expenses for your business.įrequently used as a way to attract future investors, financial projections are also an important component when preparing a business plan for a new business or creating a strategic plan for your current business. Preparing financial projections may seem like a daunting task for small business owners, but if you can create financial statements, you can create financial projections. Overview: What are financial projections?įinancial projections are an important part of managing your business. While accounting software provides the basis for your financial projections, most small business accounting software applications aren’t capable of producing financial projections.

You’ll likely be using a template to prepare your projections.If you’re still in the planning stages, be aware that you will still need to prepare projections for your business plan. New businesses need financial projections, too.Three financial statements - a balance sheet, income statement, and cash-flow statement - are required for any financial projections you create.At a glance: How you can create and utilize financial projections While that may sound confusing, it just means that most software applications such as QuickBooks Online, Sage 50cloud Accounting, and Xero can create the financial statements needed for you to prepare your financial projections, but the software itself will not be used in the actual creation of the projections. If you run a multimillion-dollar empire, it’s likely that your accounting staff is using enterprise-level software that can quickly and easily produce financial projections.īut if you’re a sole proprietor, freelancer, or micro-business owner, you’re likely to use data from your accounting software in order to prepare financial projections, but the software won’t help you in the preparation itself.

Financial software balance forecasting