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Financial projections, also called Pro Forma, are vital documents you’ll need for your fundraise. For many individuals, one of the most challenging parts of starting a new business is putting together financial projections. In many cases, the founders may not have a finance background, so the pro forma is foreign territory.
The good news is, financial projections are not as complicated as they may seem. The main thing to focus on is trying to make the projections in a useful and meaningful way. It comes down to the assumptions you make.
The reason financial projections are so important is that investors will want to see detailed five-year forecasts.
Why?
It shows you’ve thought through the financial side of your business. Understanding the financials is a great way to get an investor’s attention.
Financial projections are not about predicting the future with high accuracy. Instead, it shows the causality and interdependencies of your business. It answers questions such as:
- If sales increase by 3X, what is the impact on costs?
- If sales drop by 25%, what happens to cash flow?
A quality financial projection shows investors you know your business and understand costs along with what customers will pay for your product or service. Investors also learn how you are going to use invested funds from these financial projections, so it’s essential to get familiar with this part of your business.
Read more: https://tencapital.group/education/
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group