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Things To Consider Including In A Financial Projection

When presenting a set of projections or a financial forecast to a lender for financing purposes, it's important to provide a comprehensive and realistic view of your business's go forward financial plan.

Financial projections should include the requested capital and the incremental revenue and expense streams that are created by any planned changes in business operations.

A financial projection information package can vary considerably in its contents from one application to another.  Here is a comprehensive list of elements that can be considered for inclusion in a forecasting, proforma, or projection presentation.

1.            Sales Projections: Detailed forecasts of your sales for the upcoming period (usually 1-5 years depending on the financing company). These should be realistic and based on both historical and market data.

2.            Revenue Projections: Apart from sales, this includes all other sources of business revenue. Ensure these projections are aligned with the sales forecasts and account for any seasonal variations or market trends.

3.            Cost of Goods Sold (COGS): If applicable, include the direct costs associated with producing the products or services your business sells. This helps in determining gross margin.

4.            Operating Expenses: Detailed breakdown of all operating expenses, including rent, utilities, salaries, marketing expenses, and any other overheads. These can be categorized into fixed and variable costs.

5.            Cash Flow Projections: This is a crucial part of the financial forecast. It shows the expected inflows and outflows of cash and helps in understanding the liquidity position of the business over the forecast period.

6.            Profit and Loss Statement (P&L): Also known as an income statement, this shows the projected profitability of the business, accounting for revenues, COGS, and operating expenses.

7.            Balance Sheet Projections: Projected balance sheets give a future view of the business's assets, liabilities, and equity, showing the expected financial position at the end of each period in the forecast.

8.            Sensitivity Analysis: This includes best-case and worst-case scenarios, showing how changes in key assumptions (like sales volume, price changes, cost increases) will impact your financials.

9.         Assumptions and Methodology: Clearly state the assumptions used in your forecasts (economic conditions, market growth rates, pricing strategies, etc.) and the methodology behind your calculations. Its important that all assumptions are identified and explained so that the origin of all numbers used in a projection are known.

10.         Supporting Documentation: Any additional documentation that supports your projections, such vendor quotations and cost estimates, industry trends, or letters of intent from potential customers.

Remember that accuracy and realism are key in financial forecasting. Overly optimistic projections can be a red flag for lenders. Also, be prepared to answer questions and provide further details or clarifications on any part of your forecast.

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