PlanWare: How to ...

Prepare Financial Projections

Detailed Planning Comes First

For managers of an existing business, or promoters planning a substantial new venture, financial modeling can be an invaluable tool to assist the preparation of a business plan. However, business planning should not be confused with the preparation of financial projections. The former must provide the foundation for the financial projections which can be derived arithmetically by a model. The model and its forecasts should contribute to but never dictate the contents of a written business plan.

Once basic issues relating to markets, sales and operations have been fully researched and considered, a model can be used to produce the financial projections. However, the veracity and usefulness of these projections will be completely determined by the quality and reliability of the underlying assumptions determined outside the model. For example, if sales or cost forecasts are unrealistic or inadequately researched, then the value of a model's output is greatly diminished. An impressive set of financial projections is of little benefit if unsupported by research or only based on speculation or wishful thinking.

Sort Out Basic Issues

Before using a financial model to help plan the future of a business, a manager or entrepreneur should:

1. Decide at the very outset on the central purpose of the planning exercise (raise funds etc.); the target audience (co-directors, financial institutions etc.); and the time horizon (one year etc.).
2. Identify and think through all the critical assumptions. Prepare outline projections to confirm their overall direction, examine the critical elements in detail and consider strategic issues relating to sales, profitability, funding etc.
3. Check that all key assumptions (e.g. sales forecasts) and data (e.g. opening balance sheet and any prior-year financial results) are to hand, and have been adequately researched.

   There is a special facility, called Quik-Plan, within Invest-Tech's Exl-Plan and Cashflow Plan financial planning packages which is ideal for preparing 'first-cut' projections which can be progressively refined and expanded. To try out Quik-Plan, have a look at our free On-Line Financial Planner.

Recognize the danger of presenting too much detail or too many reports. Most senior managers, investors and financiers seek simple financial statements which have been based on detailed analysis and realistic assumptions.

Additional Help

Our Exl-Plan financial planner is ideal for generating comprehensive financial projections. It includes several reports including a 3/5 year Textual Summary Report with self-modifying text and numerous graphs & tables to present the highlights of a plan or set of projections.

For an example of one of Exl-Plan's high-level reports, click here to download an Excel file generated by Exl-Plan (file name: SAMPLE.XLS -120k - allow about a minute to download and then use Excel to explore its contents).

Also, have a look at Cashflow Plan, our range of fully-integrated cashflow planners which generate projections for 12 months ahead and incorporate a roll-forward facility to simplify updating of projections.

Top of Page

Top of Page