Startup Success Essentials: Why Projected Financial Statements Matter

A startup can only go with long-term expansion plans with proper foresight. As a startup CEO, it is imperative that you understand your company’s inner workings, analyze trends, and collate data into financial projections. These financial projections will help you improve your strategic planning and execution to provide your team with better experiences and your company with increased returns. Financial statements guide business decisions, from determining improvements in each department to budgeting capital. Without these projections, you would be unable to plan for improvements and growth scaling. As the saying goes, “When you fail to plan, you plan to fail.” Here are the clear reasons why your startup needs projected financial statements.

Paves the Way for Better Budgeting

A projected financial statement that looks at your startup’s future performance will allow you to adjust your current budget to meet long-term goals. Your budget sets the tone for your business. A poorly planned budget is indicative of misplaced priorities, or worse, negligence. Take full control of your startup by working with financial assistants to generate a budget plan that is feasible and efficient. Without projections, you would not be able to properly align your budget to your goals, as forecasts provide you with insight into how your business is faring financially. 

Identifies Trends That Grounds Decisions

Financial statement projections are made using internal and external data collected over multiple periods. These projections include the income statement, financial position, balance sheet, and cash flow statement. These projections will allow you to see trends and patterns in your startup such as what products or services bring in the most revenue, customers’ habits and usage patterns, and business expenditures. With this knowledge, you can act as needed. For example, suppose your startup generates more income from running ads than user subscriptions. In that case, you may provide a solution to increase ad revenue by increasing ads per page or by profit-maximizing.

Aids in Cutting Losses and Recognizing Gains

In the world of business and tech startups, losses are not unfounded. While each startup and company face their fair share of financial loss, it is crucial to recognize that different startups have different loss thresholds. One thing projected financial statements can do for you is to assist you in gauging your small company’s financial performance. Doing so will allow you to cut your losses early on when projections look downturn. Conversely, it may also guide your investments when the forecast looks good. Like any company, remember that you will lose out on investments and deals; however, don’t let your startup drain you of your life’s savings, time, and energy.

Helps Gather Potential Investors

One thing many startups commonly struggle with is looking for investors. If you are new to the startup scene, it may undoubtedly be challenging to find an investor if you have nothing to show. Projected financial statements are great tools you can leverage to gather more capital. When a prospective investor sees that your startup, though new and small, has potential for upward growth, the more likely they are to accept your proposal. These projected financial statements also establish your credibility as they suggest professionalism. They are also telling of your company’s longevity. Noteworthy, most investors are in for the long haul. If investors see that you are planned for the long-term, you are more likely to secure their support and monetary investments.

Serves as a Solid Guide for Business Growth

Start-ups need funds to operate and scale-up. Without funding, it is difficult to vie for increased revenue. Remember, financial projections aid in evaluating assets required to sustain operations and support expansion and revenue increase. Your projected financial plans will also help you identify how much equity you need to be financially healthy. It also allows you to see your debt-to-equity ratio. Information garnered from financial projections permits you to make data-driven decisions. In business and technology, one must rely heavily on data to make sound decisions with little to no margin of error.

Final Word

Financial projections help you make the decisions needed to drive your start-up in the right direction. With the right tools, financial assistants, and analyses, you might be well on your way to being a Forbes renowned startup or even a Fortune 500 company! Keep in mind that you cannot grow what you cannot account for. Make sure to stay up to date with your finances and to secure projections from an accounting firm. Why? Because professionals are less likely to commit errors and mistakes when preparing your financial reports and statements. If you need help making financial projections and statements for your business, give us a call. Our team is ready to serve you! We offer free 30-minute financial consultations to assess your startup’s current situation.