The projections that we have allow us to have a control over all the items of the organization. With this we can know the performance of each area, distinguish what we need to improve and how much we should invest.

 

Steps to follow

Before making a financial projection, consider that it is necessary to have basic notions of finance. If this is not your case, ask your accountant for help or download the Internet files that facilitate their preparation. On pages such as:

  -BV Consulting
  -Business plan
  -Word Business
  -Delphi

Know your company.

Víctor Calderón, founding partner of ArCcanto – a consultancy specializing in financing for SMEs – points out that the first thing is to analyze your market and your production capacity. Master the figures of your organization will help you to have an overview of the current situation to make a realistic projection.

In the case of GYEC, before carrying out a financial projection they carry out a SWOT analysis (of strengths, opportunities, weaknesses and threats) of the company in general, to observe the situation in which it is found both internally and in the market.

 

Determine the projection time

The financial projections can be monthly or annual or, as is usually done, to five years, depending on how the company works. It is advisable to do them every 30 days, to evaluate the goals periodically.

The GYEC model allows managers to perform tactical planning where they organize the strategies they will carry out month after month to fulfill the purposes. To do so, they contemplate the budget they were granted in the projection and review that the measures are aligned with the business philosophy.

And not only that. They constantly monitor each area to measure the achievement of objectives through an internal system they call “traffic signaling”. When one of the indicators is green, it is because the goals are completed in time and form. When it is in yellow, there is a problem to which attention should be paid. And when it is red, it indicates that expectations were not met. This same system qualifies the performance and results of the firm’s collaborators.

Analyze your case

If it is a new investment project, you must estimate the price of the product and the cost of operation, in addition to establishing the policies of costs, expenses and other indicators. For a company that is already underway; you should start from the latest financial statements with the support of tools such as Excel or specialized software.


Create a statement of results

Once the above points have been resolved, break down each indicator of the income statement. This document must reflect the income, expenses and costs of the company. “Look historically at how you have been to determine how you want to be,” says Calderón.

 

Calculate the sales history

Evaluate this part of the projection with the historical average of the costs and in relation to the sales of the company. Take into account if in the last period there is a factor -like the purchase of machinery- that would reduce this indicator.


Make a sales projection

Realize it based on the budget you have. To do this, answer the following questions: in what quantities is the product sold? How many customers do you have? and what will be the price?


Make a general balance

Once you have the estimated figures of the income statement, develop each indicator of the balance sheet. This part represents the liabilities and assets of the company.

It considers that the projected amounts have to coincide with all the items on the balance sheet. For example, when you say that sales will increase in a year, you should also consider that accounts receivable will grow the number of clients and that you may need financing to increase those sales.

Anticipate the cash flow

With the two previous financial statements, it prepares a projection of the statement of changes in the financial situation based on cash (cash flow). This part describes how liquidity will be. If the final figure is positive, your company is profitable; otherwise you will have to rethink your scenarios.

“The flow of cash is important because with it you can know if you are going to miss or have money left and with that determine what your investment strategies will be,” says Calderón, of ArCcanto.

Fix the projection premises

Determine how much you can increase the numbers and how many years. Check that in each period the necessary adjustments are made in accordance with important decisions that are made in the company; such as the purchase of assets, new hires, acquisition of a loan or increase in production.