The Importance of Financial Projections (business coaching training)

November 3rd, 2009 admin Posted in business |

By Joel Booker

A business seeking capital can’t afford to underestimate the importance of business financial projections. A business financial projection is simply forecasting your sales and revenue to the lender. This information is important because it is a key indicator to your ability to repay a loan.

If you are unsure about financial forecasting and how it relates to your business it is best to hire someone who does know. Most lenders will want to see a three or five year projection. There are 14 different items to include and fully support in your financial projections. With these different items it is best to give a month-by-month breakdown for the first year, a quarterly breakdown for the next two years, and an annual breakdown for the final two years you are projecting.

The different items to include in your projections are; sales revenue estimates, administrative costs, production costs, sales costs, capital expenditures, gross margin by product line, sales increase by product line, interest rates on debts, income tax rate, accounts receivable collection plan, accounts payable schedule, inventory turnover, depreciation schedules, and the usefulness or depreciation of assets.

The income projection enables the owner/manager to develop a preview of the amount of income generated each month and for the business year, based on industry supportable predictions of monthly levels of sales, costs, and expenses. When determining the total net sales you will be finding out how many units of products and services you expect to sell at the prices you are projecting. Make sure to think of what returns, allowances, and markdowns can be expected. The sales costs needs to be calculated for all products and services used. Ensure that when determining the costs of sale that you don’t forget anything such as commission paid to sales representatives, transportation costs, or any direct labor costs.

For the gross profit you would subtract the total cost of sale from the total net sales. To get your gross profit margin you will divide the gross profits from the total net sales. This will be expressed as a percentage of total sales or revenues.

When formulating your business financial projections there are five items that will ruin the accuracy of your projections, and hurt your chances of being approved for business financing. The first one is wishful thinking or being over-optimistic about your sales potential. Ask yourself: “Is it possible to achieve the sales levels you’re forecasting?”. A good example is that a sales team can only visit a certain number of customers each week or a factory can only manufacture a given amount of products on each shift. Make sure to keep your projections realistic and even more important to be based on supportable evidence. It is imperative to also make sure that your sales assumptions are linked directly to your sales forecast or your information will contradict itself. Most lenders are “by the numbers”, so if your numbers don’t add up, you will get declined. A good example of this is to say that you expect increased sales in a market that is declining. That just does not add up.

Another thing not to do when projecting your business finances is to spend a lot of time refining the forecast. Try to avoid tinkering with the target numbers once they are set. Many business owners neglect to ask the opinions of the sales people who know the buyer’s intentions about what they think the projected sales should be. It is important to make sure your sales team agrees on any sales targets that will be set. One other fatal mistake made by business owners when working on financial projections is not getting feedback on the projections from an accountant.

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The Ultimate Sales Tip - __Give Up the Need to Sell __

By govind

Most business people will tell you that selling is not their favorite activity. Lets explore a way to look at the process of sales a bit more favorably.

Whether we like it or not—were all in sales. Most of us have an internal dialogue about both selling and closing that is less than positive. Most of us approach the sales portion of our business hoping were not coming off like a salesman.

Most of us hate to be sold to. Most of us have to sell to live. Most of us realize that in order to keep our business afloat, we need to sell. I suggest that you give up that need to sell.

Please notice that I didnt ask you to give up the commitment to sell, but rather the need to sell. The hardest time to do anything is when you need to.

In the revised edition of his book Mans Search for Meaning, the noted psychiatrist and author Victor Frankl coined the term Paradoxical Intentionality. He defines Paradoxical Intentionality as The twofold fact that fear brings about that which one is afraid of, and that hyper-intention makes impossible that which one wishes.

In other words, if you need to do something it makes the task much more difficult. Franks thesis can best be illustrated by an example with which we all can identify.

The last time you needed to get to sleep because you had something important to do the next morning how easy was it to get to sleep? The last time you needed to stay awake for the end of a film how easy was it to stay awake?

So I repeat give up the need to sell. Be committed 150% to making the sale but avoid becoming tied to the outcome of making the sale.

This is contrary to what many of us have been taught. However, if you view yourself as a problem solver rather than a maker of sales this concept will make much greater sense.

I define a problem as, something that exists when there is a difference between what you have and what you want. My definition of business is, The ability to solve other peoples problems and get and make a profit.

Closing is the ability to create an environment in which the prospect can come to the conclusion that our product or service will solve his/her problem.

Based on these definitions, our job becomes a process in which we first uncover whether the prospect has the type of problems our business solves. Next we have to find out if the prospect truly believes that a problem exists (and its important to let the prospect be the judge.)

If the prospect believes that there is a problem, and that the problem is likely to cause monetary or emotional sacrifices, he or she will be more open to having someone who can be trusted help solve the problem. In other words, the prospect begins to close the deal.

Your prospect will begin to convince and influence you that there is a need for your help. He or she will become the source of the sales presentation and the close. As backwards sounding as this may seem its really the way it works.

Because the responsibility of convincing and influencing is assumed willingly by the prospect nearly all of the stress and negativity we associate with selling literally disappears.

Use this approach to selling and youll see a big difference. Instead of a day filled with trying to sell things to people, you will get to solve peoples problems. This is a much more enjoyable way to approach the selling part of your business.

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