A financial projection is a concept you must consider when you think about a venture, investment, search for financing, growth plan, or foray into new markets since it will allow you to determine the project's economic feasibility.
In this article, we
tell you how to make financial projections so you can be clear about the
viability of the project you want to carry out.
Advantages of
making an accurate financial projection
Good! You should
already know the benefits of good financial planning based on accurate and
realistic projections. Still, for you to understand it better, in the following
lines, we will talk about 6 specific advantages that precision in projections
brings.
Let's see!
Break-even point
identification
This financial concept
refers to the ideal sales level in which costs are covered, both fixed and
variable.
In other words, it is
a point at which the benefit of your company is zero since it does not lose
money, but it does not win either.
To identify this level
of balance, you must go beyond your company's current situation and calculate
the performance it could have in a given period; logically, to do it, you will
need a solid financial projection.
It will allow you to
project the average monthly expenses during a certain period and the average
gross and net income.
Although identifying
and targeting the breakeven point is not the ideal situation for a company,
from a profitability point of view, it is key to be clear about how much money
you need to produce to withstand the passage of time and have some stability.
Better risk
management
Financial projections for startup effectively identify possible decreases in income
and other risks derived from crises and environmental problems.
In this way, you and
your work team can anticipate events, making the necessary decisions to
mitigate the impacts of crises and environmental situations that compromise the
commercial sector.
Of course, for it to
be possible to detect threats and risks, you not only have to take into account
the history of your company and its evolution when carrying out projections,
but you must also be very attentive to the environment in which it operates and
the respective situations that could arise.
Greater
probabilities of access to credit and financing
If you make a solid
financial projection, you will have transparent and realistic data about your
company, which opens many doors, including access to credit and financing.
Financial institutions
and banks consider the accuracy of the data and a company's accounting and
administrative planning before lending money to support a certain investment or
expansion project.
Likewise, precise
planning and transparent numbers will be very useful if you want to establish
commercial alliances, partner for a certain project or include new
shareholders.
Optimal
distribution of the product portfolio
Among the data that a
financial projection will give you is the expected benefit of the different
products or services that your market will provide.
This means that you
will know which goods, items and services represent the greatest profitability
and growth opportunity for your business, so you should give them the priority
and expand your distribution channels.
Also, you will detect
which marketing objectives are not entirely profitable for you to determine
whether to eliminate them, reduce their distribution flow or apply actions or
strategies that allow you to reverse the negative trend.
Better customer
portfolio management
Just as it will allow
you to detect which products are more profitable, a solid financial projection
will also allow you to know which clients generate the greatest benefits for
your business.
Under this, you can
make decisions that optimize the management of the user portfolio,
strengthening those commercial relationships that make your business viable and
increase its opportunities for growth and expansion.
Possibilities for
sustainable growth
What we have mentioned
so far shows that if your company plans to grow or expand, making a financial
projection is essential for the project to be carried out sustainably.
By having a solid
notion of return on investment, expected benefits and variable and fixed costs,
you can develop a growth plan on solid foundations that adjust to your
business's real and true needs.
On the other hand, if
you do not know what awaits your company soon, making investments and
modifications to grow represents a great risk that can ultimately have serious
financial consequences.
Want to hire best
financial projections team for your business then Maven Business
Plans is here to help you
out.
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