19/04/2023
Top tips for preparing your forward projections and cashflow forecasts.
Whilst every business has diverse needs when it comes to raising money, the tips below should give you a good starting point in preparing your own projection and cashflow forecasts.
1. Before you even open Excel, (or whatever forecasting tool you might be using|) start with a high-level overview. If you are creating a 5 year forward projection for example, start with the key numbers such as Sales, Gross Margin, Operating Costs, etc at year 5 and work backwards until you have key numbers for each of the years you are projecting. These will function as a useful guide to keep you on track once you dig into the detail.
2. If you are looking to raise funding, ensure there is a clear relationship between the funding and route to profit in your business.
3. Be realistic and honest with your numbers. This is a time to be prudent and not create outlandish forecasts. Remember, if you are asking a lender for money, one of the easiest reasons for lenders to say no is that your projections show you do not need it!
4. Analyse any historical data that you have and use that as a basis for your assumptions. Split out sales by different income streams to work out the gross profit margin for each for example.
5. But also make sure you are looking outside of your business at how the market and economy are doing, how competitive is your market space and is it growing or declining.
6. Do not assume everything is going to happen in a nice straight line. Most businesses have a degree of seasonality to them, so make sure you reflect that in your numbers, (particularly sales).
7. Do not make things too complex. Create outline model guiding principles, (assumptions) and use them to build your forecast. Some examples of this might be.
a. Customers pay on 45 days.
b. Suppliers are paid on 30 days.
c. When recruiting new salespeople, it will take 6 months of training before they are positively contributing to the sales numbers.
8. Do not forget to include the cost of borrowing, (interest) and capital repayments into your projections and cashflow.
9. When forecasting people costs, make sure you understand the full cost of employment beyond the salary or hourly rate. Expenses such as pensions, employers’ national insurance, bonuses, commissions, medical insurance, and other benefits soon add up.
10. If you are projecting high levels of recruitment, try to work out on onboarding cost per role that you can use in your projections. For example:
a. Cost of computer & IT Equipment
b. Software licences
