MultiCare Business Solutions

What keeps Projections from just being a number-crunching exercise?

Financial Projection plays a vital role in business finance. Here are three good reasons to project your financials:

1. First, the financial plan translates your company's goals into specific targets. It clearly defines what a successfully outcome entails. The plan isn't merely a prediction; it implies a commitment to making the targeted results happen and establishes milestones for gauging progress.

2. Second, the plan provides you with a vital feedback-and-control tool. Variances from projections provide early warning of problems. And when variances occur, the plan can provide a framework for determining the financial impact and the effects of various corrective actions.

3. Third, the plan can anticipate problems. If rapid growth creates a cash shortage due to investment in receivables and inventory, the forecast should show this. If next year's projections depend on certain milestones this year, the assumptions should spell this out.

Depending on your company's situation and objectives, you'll need to develop several types of projections and budgets:

1. A model that projects either the current year or a rolling 12-month period by month.

2. A long-range, strategic plan looking out three to five years.

3. Budgets, typically covering one year

4. Cash forecasts.