An investor who puts money into your business has the right to understand your company’s financial potential to determine whether it is a worthy investment. The financial projections you include in a business plan should show how you anticipate your business growing, and how it will give enough back to an investor to justify his risk. Business plan financial projections should be both optimistic and realistic, based on research and experience rather than wishful thinking.
Revenue
Revenue projections tell investors how much you plan to sell and how much you anticipate your sales will grow over time. To provide realistic revenue projections, think through how you will generate the sales you expect, such as marketing campaigns you will need and customer awareness you will build. Also brainstorm about how you will provide enough of your product or service to bring in that amount of money. For example, if you project $100,000 in sales and your products sell for $2 each, make sure you will have sufficient production capacity to make 50,000 units.
Cash Flow
A cash flow projection shows investors that your business will have enough money on hand to cover its day-to-day expenses. Cash flow projections list anticipated sources of revenue such as investments, loans and revenue from sales. They also list outgoing sums such as loan payments, rent, payroll and materials costs. A cash flow projection can signal to a potential investor that your company is likely to generate enough of a surplus for his investment to be repaid or whether your business will be chronically short of cash.
Profit and Loss
A profit and loss statement shows an investor whether your anticipated business revenue is sufficient to cover your anticipated business expenses. It differs from a cash flow projection, because not all sources of cash, such as loans and investments, are business revenue, and not all outlays, such as loan payments and owner’s draws, are legitimate business expenses. A business that earns a profit is a worthy investment even if it has short-term cash flow difficulties, because it has a healthy business model that will eventually enable it to operate in the black.
Balance Sheet
A balance sheet projection gives a potential investor an idea of your company’s overall anticipated financial picture at a particular moment in time. It shows your forecast assets, such as cash on hand and accounts payable, or money that is owed to your company. It offsets these amounts with projected liabilities such as outstanding loan amounts and accounts payable. Subtracting total liabilities from total assets provides a projection of your company’s estimated net worth.
Article from: chron.com