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How to Make Financial Projections for Your Creative Business
Many creatives struggle with the business side of their craft. If business planning, budgeting, marketing, and sales forecasting aren’t your forte, you will have a hard time establishing a reliable foundation for your creative business. Take the time to learn good business practices so you can set yourself up for success!
Creating financial projections is an essential part of business planning. Not only can you use financial projections to convince investors and moneylenders that your creative business idea is financially viable, but these projections will also help you establish an effective business budget and financial goals to work towards. Plus, measuring your progress against your financial projections will help you identify whether or not you need to make proactive changes to your business. Artistica explains how to make realistic financial projections to keep your business on the right track!
What Are Financial Projections?
Financial projections estimate the future income and expenses of your business based on existing financial data. Without historical data to draw on, startups typically use market research to come up with realistic estimates. Using this data, you can estimate your future income and expenses to ensure that your business will maintain a healthy cash flow and continue to turn a profit in the coming years.
Leveraging Accounting Software
Software for accounting can be used for more than just keeping track of your business expenses. Many accounting programs generate robust financial reports like income statements, cash flow statements, and balance sheets that you can use to create financial projections as accurately and effortlessly as possible.
Calculating Financial Projections
Financial projections typically include an expense budget and a sales forecast three years in advance. To calculate your future sales, Owner explains that you will need to choose a forecasting method. Historical forecasting is only realistic if you have existing data to draw from. If you’re just getting off the ground, try estimating how many clients you can reach during a given period and calculating what percentage of these clients will convert into paying customers.
Your expense budget details your ongoing operating expenses, including items like rent, payroll, utilities, insurance, benefits, taxes, and marketing costs. Don’t include your direct costs—what you spend to produce or purchase your products for sale—in your expense budget since this information belongs in your sales forecast.
Many creatives aren't adept with numbers. If you struggle with bookkeeping or with organizing your accounts, taking a few accounting classes can give your skills and confidence a boost. Fortunately there are accredited institutions like Phoenix University that offer online courses going toward a degree like Accounting, a remote learning opportunity that allows you to continue working and living life at your own pace and on your own schedule, wrapping up a course within five weeks.
Fundamental Financial Statements to Include
In addition to expense budgets and sales forecasts, financial projections typically include three different financial statements—an income statement, cash flow statement, and balance sheet. These three financial statements will help you prepare your financial projections and add credibility to your business, which is especially important when seeking funding from investors and banks.
An income statement, also called a profit and loss statement, is a document detailing your business’s revenues and expenses during a specific period. This should provide you with your net income. Stage 2 Planning notes that a cash flow statement details the amount of cash flowing in and out of your business at a given time, a very important data document to use to manage operations. Finally, a balance sheet will provide an overview of your assets, liabilities, and equity during a given time, painting a comprehensive picture of your overall financial health. Using these financial statements, you should be able to see how your business performs in any given month or year, so you can carry those projections forward.
As a creative person, financial planning may not be at the front of your mind. However, it’s extremely important for the long-term viability of your business. Whether you’re looking for investment capital to expand your business or you just want a clear picture of your future financial health, making financial projections is key!