Preparing Financial Projections

Financial Projection Software

You should develop financial projections for at least the first two (preferably three) years of operation. The minimum would be Income (aka Profit & Loss) Statements, but you should consider also producing Balance Sheets, Statements of Cash Flows and Adjustments to Shareholders Equity.

The Small Business Administration and most bankers believe that the best projections that can be created for a new franchise include Income (or Profit & Loss) Statements, Balance Sheets, Statements of Cash Flows and Adjustments to Shareholders Equity for three years from the start of the business. Most believe that monthly numbers should be developed for the first year and quarterly numbers for the next two years.

To do this properly, a good deal of research must be done and the individual developing the projections should have a good understanding of accounting and expenses typical to businesses of your size that operate in your industry.

Obtaining actual operating statements from the industry, the franchisor or a franchisee will greatly assist you in making accurate estimates. You may be wise to engage an accountant or a consultant experienced a developing financial projections for business plans.

If you decide to develop your own set of projections, you’ll certainly want to utilize your computer. This will allow you to make “what if” assumptions and instantly determine how these changes will impact your business’ profitability and financial strength. This is the first early application that turned businessmen on to the great value of the PC. While word processing was gaining acceptance, the introduction of “VisiCalc,” the earliest popular spreadsheet program caused an explosion in the industry and a restructuring of how the accounting field develops financial projections.

Today, there are a number of software program that will ask you to input your assumptions of what your revenues, costs, investment, and debt will be and then the software will develop the balance of the projections.

Software to Consider:

SpreadSheet Programs

Both Microsoft Excel and WordPerfect’s QuattroPro contain spreadsheet files that can be used to build your projections. These require you to have a good deal of understanding of financial accounting. You may also find a file in shareware web sites that can be used to develop your numbers.

Business Plan Software

Most of the popular software programs for developing Business Plans include Financial Projection programs. Often these are files to be run inside your spreadsheet program. They will do a good job, but there are better solutions.

Entrepreneur Magazine’s “What If…?” is a moderately priced program at $79. It does a good job for a moderately priced program but its documentation is quite weak. Now available as Ultimate Financial Forecaster 3.0 from Atlas Business Solutions, Inc

Ronstadt’s Financials 2.0 is an outstanding program developed by Robert Ronstadt a consultant and college professor. It comes equipped with a “library” of pre-programmed cases for “typical” Retail, Real Estate, Manufacturing, Personal Services, and several other industries. In addition, each cell’s formula can be altered (using English, rather than cell references) and additional rows can be added to fit your needs.

You fill in an “Assumption Statement” for your model by answering questions about your venture. Then the program calculates and produces: Assumption Statement; Revenue Forecast; Income Statement; Balance Sheet; Cash Flow Statement; Key Measures; Projected Breakeven; and Supporting Schedules. You can expand, or collapse your reports from quarterly to monthly. In addition, you can create “Best Case,” “Worse Case,” and “Likely Case” scenarios. There are options for creating budget vs actual scenarios and a wide variety of graphs are available.

While quite complex for the novice, this program will produce excellent results (assuming your input is based on sound research and reasoning). You may want to go to their web site and reach your own decision. If you decide to purchase, please list The Franchise Doctor as the reference source. (800) 525-5673

Ronstadt Financials

EX Numbers