Why 3 to 5 Year Projections are Impossible but Necessary
If you are planning to grow your business, create cash flow projections for 3 to 5 years out. Once you have a base projection, save a few copies so you can do “what-if” scenarios. What if I borrow more money now? What if I raise more capital? What if I speed up/slow down growth?
These questions will help you stay better informed and make decisions based on relevant information.
Ingredients for 3 to 5 Year Projections
Projections are difficult to create because they are essentially acts of faith that are backed up only by assumptions made on your sales, channels and market potential. For higher accuracy, what you can do is run a mini-test from time to time to re-calibrate your 3 to 5 year projections according to the latest market trends. To begin with:
Determine your product price
Determine your market and then estimate the value of your total sales. Use market number to limit your sales projections and remember to take into consideration your timing as well. Most new membership sign ups tend to occur in January, so do make sure that the associated revenue numbers do not appear in your projections in any other month. You can download a great 5 year projections template from Microsoft Office here.
Your Projection is a Shield and Weapon
After building your 3 to 5 year projections model, you’ll now be ready to answer probing questions from the shareholders and company. You can now track the progress of your business and you have early warnings to tweak your plan if the figures begin to look misaligned.
Creating your 3 to 5 year projections is often one of the hardest parts of writing your plan, but the discipline and understanding you’ll develop will lay the foundation for a thriving, healthy business.