Have you applied for a business loan and been asked for projections or a cash flow? Most lenders will want this information but entrepreneurs often don’t know where to start.
If you are an existing business you can use your historical financial information to project out what the next 12 to 24 months will look, including the debt service on the new loan you are applying for, any new sales or revenue that investment will create, and what might go away (for instance rent if you are buying your own building versus leasing). The purpose is to demonstrate that you understand how your income and expenses will flow in and out (cash flow) of the business, and that you can repay the amount borrowed. Include some margin for error since nobody ever projects perfectly.
If you are just starting a new business, this is a little trickier. Estimating the expense side is usually easier than the revenue. You can negotiate rent, find out what utilities cost, price insurance, set a marketing budget, and so on. Sales are another matter. How many people will by your product or take advantage of your service depends on what it is, competition, how much marketing you plan to do or can afford to do, and a whole host of other factors. Since you will have some of your hard-earned money and time invested in the deal as well, you want this estimate to be as accurate as possible so as not to enter into this venture only to have it fail. Remember to account for how much, if any, money you need to generate from this business to sustain your lifestyle. If you have personal bills and living expenses that must be paid, that needs to be factored in.
I usually recommend to my clients that they generate projections for at least two years (some lenders will want three). Wyoming Entrepreneur has a very good template on the web site, www.wyen.biz, under the Start a Business tab. It includes a loan calculator to assist in determining what that new debt will cost you. This template generally satisfies the format a lender wants to see.
Remember, it usually takes more money and more time than you think to get the business to the point where it is operating at a profit on a monthly basis. Be especially careful with highly seasonal businesses and recognize that when you start can make or break the deal. For assistance in developing these projections contact the Wyoming Small Business Development Center office in your area, or call 1-800-348-5194.