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Looking Forward: How to Make Meaningful Business Projections

Eric Weynand, Founder
business projections

With today’s technology, we’re lucky to have limitless business data points at our fingertips. But without using our data correctly, it can become meaningless. 

Missed opportunities, unidentified risks, and a general sense of overwhelm can impact business owners whose data isn’t being used effectively. 

But don’t worry just yet! With a structured approach and the right tools in your corner, you can feel prepared for whatever the future holds. 

Laying the Foundation for Better Projections

Projections won’t hold much weight without covering some bases. Here’s what you should set up to ensure your business projections are useful:

Clean Books

While it can feel like a chore, making sure your financial records are clean and organized makes a difference for your business. If you haven’t had the chance to organize them, take the time to do so, bringing on external support if you feel overwhelmed. 

Going forward, set up systems to ensure your books are always in good order so that it doesn’t require a large undertaking. This includes:

  • Timely recording of income and expenses
  • Reconciling bank accounts
  • Keeping track of any outstanding invoices or bills

Plus, this helps with tax time and regulatory compliance!

business projections

Accrual Accounting 

Transitioning to accrual-based accounting can significantly improve the accuracy and insight of your financial projections. 

Unlike cash-based accounting, which records transactions when cash is exchanged, accrual-based accounting recognizes revenue and expenses when they are earned or incurred, regardless of when cash actually changes hands. This method provides a more comprehensive view of your financial position and performance over time, enabling you to make more strategic decisions. 

Transitioning to accrual-based accounting can be done efficiently with software

Financial Statements and Ratios

You don’t need to be a financial expert to run your business, but understanding the basics of financial statements and ratios will ensure you understand and can plan for meaningful business projections. We’ve written an article with the basics if you’re looking for a refresh, and they can be generated quickly with the software once your books are in order. 

Projections and Reports

Now that the basics are in order, it’s time to dive into getting the projections you need! 

Key Performance Indicators (KPIs) 

Without deciding on your KPIs, your projections won’t be as effective. You need to clarify what your financial and non-financial goals are so that you can make projections, measurements, and progress. 

What matters most can vary depending on your industry, business model, and goals. Here are some simple examples:

  • Retailers could measure Average Transaction Value (the average amount spent by customers per transaction) and sales per square foot. 
  • Technology companies often measure Customer Churn Rate (the percentage of customers who stop using a product or service over a specific period) and Customer Acquisition Cost (their average cost to acquire a new customer).
    • Restaurants might measure the Food Cost Percentage (total revenue spent on food ingredients and supplies, controlling costs and maintaining profitability) and customer satisfaction. 
  • Construction companies might measure safety incidents and Project Profitability Measures, gauging the profitability of individual construction projects by comparing project revenue to expenses.

One-Page for Simplicity 

There’s a lot of data in your finances and a lot of information floating around in your busy brain. 

Get your KPIs and any other financial information ready and put them in a simple one-page dashboard that you can easily process and use to make projections. 

For more tips on what to include in your dashboard, check out this article

Where the Magic Happens

Now you’ve got your reports sorted, here’s where you’ll really be able to shine. 

Unfortunately, no one holds a crystal ball for the financial future. But consider the following based on your expertise in your business and industry to ensure your projections are meaningful: 

  • Review Historical Data: Analyze past financial performance to identify trends and patterns that can inform your future projections.
  • Anticipate Market Trends: Stay informed about industry trends and economic factors that may impact your business, allowing you to make more accurate projections.
  • Project Cash Flow: Forecast your cash inflows and outflows to anticipate potential cash shortages or surpluses and plan accordingly, considering seasonal impacts.
  • Monitor Expenses Closely: Track your expenses to identify and address cost inefficiencies.
  • Consider Revenue Opportunities: Are you expecting new marketing, products, or business services to pay off? Will you be diversifying revenue streams? 
  • Manage Debt Wisely: Keep a close eye on your debt levels and ensure that any borrowing aligns with your long-term goals.
  • Err on the Side of Caution: Be conservative and realistic for potential risks and uncertainties, along with revenue growth.  
  • Explore Scenario Analysis: Consider different scenarios and outcomes to assess the potential impact of various factors on your business.

Fine Tune

Your projections will never be perfect, but you’ll improve with practice. When there are major differences, take the time to consider what happened. Try to discuss with your team or an outside expert if there is anything you can’t figure out. 

business projections

Making it Easier 

If making meaningful business projections sounds like a lot of work, don’t panic! 

The software we utilize is designed to make your reporting a breeze, with one-page custom dashboards, cash flow forecasting, and financial reports automated for your convenience. 

Let PlotPath do the heavy lifting so your brain can focus on your business projections and make your dreams come true.  

Contact us today to make your projections more meaningful!