Financial management of a business encompasses historical data analysis, current budget control, and future scenarios. Therefore, creating a business financial projection is a way to prepare for the challenges and opportunities that may arise.

By using the right tools for forecasting, the company can make better decisions, strengthening strategic planning. Based on the results obtained during the study, management can mitigate risks and optimize growth.

Want to know how to successfully create and manage your business’s financial projections? Keep reading to find out!

How important is business financial projection?

Before learning how to perform a business financial projection, you should understand its importance for your business. It can be performed over different time periods, divided into short-, medium-, and long-term projections.

Thus, a properly executed projection reveals the business’s financial potential, revealing its health. By visualizing future expectations, managers can identify potential deviations and take corrective action before problems worsen.

Likewise, the department manager identifies opportunities to optimize results, increasing profit potential . Furthermore, the projection allows for understanding cash flow trends, demonstrating periods of liquidity shortage or excess. Therefore, management can manage resources accordingly.

It’s also important to emphasize the importance of financial projections for a company’s strategic planning. When managers are aware of future business trends, they can more effectively define actions to achieve satisfactory performance.

How to prepare an efficient financial projection?

Now that you understand the importance of a business financial projection, it’s time to learn how to prepare it properly. Follow along below!

Gather data and define the time frame

The first step to effective business financial projection is to gather industry data. Therefore, organize reports, financial statements, and other relevant information to understand business patterns. The more complete and accurate the data, the more reliable the projection will be.

For this step, it’s necessary to define the timeframe to be observed. When analyzing past performance, it’s important to have results from a longer period—allowing for verification of repeats. For example, if the idea is to make a projection for a year, it’s worth analyzing the history of the last five years.

This allows management to visualize seasonality and identify recurring trends. This comparison provides a greater chance of accurate results.

Forecast income and expenses

After gathering the necessary data and defining the assessment period and projection, management must forecast revenue and expenses. To estimate revenue, cross-analysis is required.

The first is based on the company’s existing data from its past results, as you’ve seen. In addition, it’s important to assess the market and expectations for your area of operation. Check, for example, growth forecasts, consumer trends, launches, and technologies for the segment.

Therefore, it’s important to observe how the company positions itself within the current context and its growth and competitiveness strategies. Based on this, the manager can calculate expected results. The study becomes more accurate with indicators such as moving averages or trend analysis.

Meanwhile, costs can also be analyzed by looking at past information. In addition, it’s worth reviewing investment planning, noting the resources that will be used to achieve the defined objectives.

Note that investments tend to be linked to profitability; after all, the expectation is that they will generate new resources in some way. Therefore, consider how this relationship plays out when making projections.

Analyze cash flow

Cash flow is an important business tool, so it should also be included in your company’s financial projection. Recording revenue and expenses makes it easier to make estimates and visualize future cash flow.

It’s linked to the balance available for the business’s short-term operations and is crucial for meeting operational obligations and maintaining financial health. As you’ve seen, when considering cash flow, management gains insight into periods of excess or shortage of resources.

This way, she can plan her decisions according to her movements, maintaining a healthy financial flow throughout the year, without compromising her activities.

Design scenarios

With the previous steps, you’ll already have enough data to efficiently project future scenarios. It’s recommended to organize your planning based on these results, visualizing the prospects for various departments of the company.

To achieve this, those responsible can use technological tools, such as integrated financial management systems . These systems centralize all information, allowing for quick access and accurate results.

Similarly, systems contribute to projection by automating calculations. Furthermore, these tools can generate indicators that facilitate financial control.

Monitor the results

After creating your projection, monitor the results to ensure they match reality. As you’ve learned, automated systems often generate performance indicators. Therefore, they are useful for monitoring the business’s financial performance and comparing it to what was envisioned.

In this sense, the projection must undergo periodic reviews and adjustments, aligning expectations with the reality of the enterprise. Keep in mind that, no matter how good the forecasting work, market and company behavior may differ from conjectures and require new measures.