Financial Projections

Description

Why prepare financial projections?

There are a lot of reasons to prepare financial projections. Early stage, growth mode and even mature companies must prepare financial projections to measure performance and increase return on investment. Growth is the number one driver behind enterprise value. More specifically, sustainable revenue growth and quality of earnings are the goal. They are the primary interest in merger and acquisition transactions. If you have even the most remote interest in building a business that one day you may sell, you will want to master the process of preparing realistic financial projections.

If you don’t have the right finance staff – yes finance, not accounting (I’ll explain in a bit) – that can prepare accurate, bottom up financial projections, you can get outside help. Outside finance consulting is your best, most cost effective step into disciplined financial management. Check out the outsourcing rationale: what work should you outsource to get an idea of how it can help.

Back to the difference between accounting and finance. Accounting is about the past, finance is about the future. Don’t expect your accounting staff to understand finance. If you depend on accounting people to provide you with reliable finance work, you will fail. Put the right people, qualified people, on task to get the best results. Need financial projections? Put a qualified finance professional on the job. Considering selling your business at any time in the future? Get to know qualified M&A advisors.

Related: What to Expect from your M&A Advisor

Business owners often underestimate the importance of preparation, documentation and positioning when preparing financial projections to build sustainable revenue growth and quality of earnings. All businesses need to adapt to constantly changing markets to remain competitive. Innovation is a critical component in strategy, finance and operations.

Business Valuation

Financial projections are also a major component in business valuation.

We can help your team set opportunistic sales goals, align your expense budget to achieving expectations, manage risks and maximize profits by preparing achievable financial projections. We help companies define superior strategies, enable disciplined financial management and create operational processes that are grounded in building lasting shareholder value. Types of financial projections we design with you include:

  • Strategic Planning
  • Operating Budget
  • Capital Budget
  • Long Range Planning

Management is responsible for devising, executing, monitoring, and reporting on a complete financial plan that focuses on:

  • Liquidity—ability to pay bills when due and to meet unexpected needs for cash
  • Profitability—ability to earn a satisfactory net income
  • Long-term solvency—ability to survive for many years
  • Cash flow adequacy—ability to generate sufficient cash through operating, investing, and financing activities
  • Market strength—ability to increase the wealth of owners

Budget or Forecast?

What is the difference between a Budget and a Forecast? A budget is the dollar amount allocated to expense over the period of the budget (monthly, quarterly, annually); or burn rate. A forecast is the intended sales and profit outcome by spending the budget; or revenue. By planning both of these interdependent elements simultaneously you can get perspective, position your organization to take advantage of opportunities, and pivot quickly and appropriately when things change.

Our finance professionals work with your team to:

  1. Analyze and Normalize past financial aberrations to establish target KPIs and Ratios
  2. Standardize your Chart of Accounts
  3. Analyze unit economics and sales processes (gestation, delivery, support, etc.)
  4. Compare historical burn rate to earnings to identify optimal activities and inefficiencies
  5. Establish best practice Budget, supported by target KPIs and Ratios
  6. Design Revenue Forecast in line with industry standards, market share and human capital resources
  7. Incorporate all of the above in monthly, quarterly and annual:
    1. Balance Sheets
    2. Income Statements
    3. Cash Flow Statements
    4. Ratio Analysis

This process may take us up to one month to complete because it requires collaboration with, and significant information from your team. We have significant experience leading this process. With the right amount of attention and accurate information from you upon implementing the engagement, we may be able to complete it in a matter of weeks.

We also offer ongoing support for the duration of the forecast.

Need help with your company’s brand value proposition? Check out Alignment Media‘s digital services.

©2019 ALIGNMT LLC | Alignment Strategy | Mergers & Acquisitions | Investor Relations

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