financialtreat – will explain about The Importance of a Finance Projector for Your Company which you will get in the following article. let’s look at this article carefully!
What is a Finance Projector? The Finance Projector is a financial budget project created to aid in the execution of a business venture plan. Financial projection in general gives an overview of the financial circulation of a company, including predictions of expenses, a capital budget, and so on.
Everything related to financing the implementation of a business venture will be contained in a Finance Projector. Why design a financial projection before starting a business venture? Designing something into everything is critical to ensuring the success of a project. In a business venture, the main problem is the finances of the company.
The Importance of a Finance Projector for Your Company
If there isn’t a clear plan and system for financial management, the business will float and be very likely to go bankrupt because it doesn’t have any real information about its finances.
Financial projections in general are also a guide to the total budget you will spend on a business venture.
Why is financial projection important?
As a new entrepreneur, financial design is the first thing that must be seriously considered. Financial planning becomes very crucial because if you do not have a clear financial plan or management system, the business will become directionless and risk bankruptcy.
Therefore, budget projects or concrete data about company finances are very important in order to avoid these things before starting a business. Fund prediction and allocation are important for the continuity of a business.
Financial Projection Function
The functions of this financial projection are many. Let’s see the review below:
The first function of financial projection is budgeting. Through proper budgeting, companies can plan for every expense that will be made every day, such as logistics, human resources, income, expenses, taxes, and so on. When creating a budget, you can create it for a daily, monthly, or even yearly period. More detail is certainly better.
2. Cash Flow Management
In financial projection, the function of cash flow management is to allow you to find out the company’s financial condition throughout the year. when the finances are in good condition or not. So you can anticipate the less-weary possibilities.
3. Capital Allocation
In order for your business to run well, you certainly have to know how the capital you have is divided. Capital allocation is a very important thing to do when starting a business.
4. Know your company’s values.
Knowing the value of the company is another important thing. Why? When you meet with investors, you must know the value of your company ahead of time. You can also know the value of this company by having a financial projection.
5. Knowing Capital Expenditure (CAPEX) and Working Capital
When building a business, setting the highest target is a good thing, but you also don’t forget to ensure the quality of your company. Know your CAPEX and working capital for the next year, if not the next three.
As a novice businessperson, there are two ratios that you need to pay attention to, namely:
- vertical ratio, or profit-to-loss ratio. What are the profit-to-turnover and marketing-cost-to-turnover ratios? so that you can determine the next steps for your company.
- Horizontal ratio. This ratio is useful for knowing the growth of your business from year to year. So, you can see a comparison of the development and growth of your business.
Financial Projection Objectives
After knowing its functions, you also need to know what the purpose of creating a budget project is. The following are the four goals of developing a financial projection:
- The main purpose of creating a budget project is to know the future condition of your business according to the business plan that has been made from the very beginning.
- for simulating business budget projections from the plans already made.
- You can receive funding from investors or financial institutions if you have or make a good budget project. So, investors can also analyze the preparation of the business that you are about to start.
- Another goal of creating this budget project is business expansion, so that your business will expand and grow.
Stages of Creating a Financial Projection
There are several stages that you need to pay attention to when you want to create a financial projection. Here are the stages in general:
- Calculate the initial funds needed. This fund is commonly referred to as “start-up money.” What is meant by “initial funds” are the funds needed in a financial projection, namely the total of all funds prepared as initial capital to start a business. For example, these funds are sourced from investors, donors, creditors, personal capital, etc.
- Calculate your existing fund plan or prediction with the funds you’ll spend. The difference is the lack of company funds that you need to look for. If necessary, you describe in detail the entire needs of the company. starting from the monthly salary budget, calculating taxes, legal fees, operating expenses, etc.
- Sales estimates also need to be included in the company’s budget projections.
- For the record, this budget project is a general overview of the company’s financial management. This financial projection has a character that provides the most realistic picture possible to achieve, so that the business you will run has a guaranteed chance of success.
- For new companies, this picture of a budget or financial project usually does not place too much emphasis on detailed concepts. Only an important overview of the company’s needs should be clear. Meanwhile, for large-scale companies, it is usually required to use financial projections as a reference for implementing a larger business.
The key to creating a financial projection is to present numbers that are proportional and realistic to your company’s needs. It can be said that this financial projection is a submission proposal that must be presented properly so that the party who will provide the funds is confident in the business you are running. I hope the information is useful!