What Should Be Included in Financial Projections for a Startup?

From the estimated growth rate to a breakdown of key assumptions, here are 15 answers to the question, “What are the most helpful things to include in financial projections for a startup?”

• Estimated Growth Rate
• Market Analysis
• Detailed Sales Forecast
• Analysis of Risk Factors
• Contingency Budget
• Competitor Analysis
• Income Tax Projections
• Bottom-down Revenue Forecasting
• Payroll
• Macroeconomic Situation
• Sales and Marketing Projections
• Financing Needs
• Profit and Loss Statement
• Projected Cash Flow
• Breakdown of Key Assumptions

Estimated Growth Rate

While many entrepreneurs underestimate their expected growth, it is vital to be conservative but realistic with projected sales, expenses, and investment figures. An uncommon example would be to include customer retention as a factor.

Even if a business experiences high levels of short-term success, inquiring into customer loyalty can help provide an overall picture of potential long-term profitability. By focusing on key factors such as customer engagement and feedback, startups can build a better foundation for expected success when outlining financial projections.

Tasia Duske, CEO, Museum Hack

Market Analysis

Since the valuation of most start-up businesses highly depends on the projected growth of the company, I believe that market analysis is one of the most important metrics in financial projection for a startup.

Market analysis helps to understand the industry, target market, and competition of the startup. It will give you a sense of the size and growth potential of the market, as well as the key trends and drivers that will impact your startup’s performance.

Once you have a good understanding of the market, you can use this information to make realistic financial projections for your startup. If you know the size of the market and the growth rate, you can forecast how much of that market you can realistically capture and how quickly you can do so.

For instance, if the startup is entering a very dense and competitive market without a proven innovation or edge, then the financial projection of that startup should be modest, since it wouldn’t capture a significant market share.

Paw Vej, Chief Operating Officer, Financer.com

Detailed Sales Forecast

A detailed sales forecast should comprise projected revenue and unit sales for each product or service, and the expected sales mix and pricing strategy. The sales forecast should be based on market research and a solid understanding of the target customer and the competitive landscape.

It should also consider the startup’s unique value proposition and how it plans to gain and keep customers. You should break the sales forecast down by month or quarter for the first year, and by year for the next two to five years. Additionally, the sales forecast should be accompanied by an explanation of its assumptions and rationale, such as the projected market size and growth rate, target market share, and marketing and sales expenses.

Zach Goldstein, CEO & Founder, Public Rec

Analysis of Risk Factors

No startup venture comes without the risk involved—even with careful planning and research. Your financial projections should include a thorough risk assessment to address potential challenges associated with launching a new venture and how those risks can be addressed.

This includes external factors, such as changing market trends and competition, and internal ones, such as hiring and training new employees. A comprehensive risk assessment can help show that your business is prepared for any potential problems it may encounter.

Peter Lucas, Owner, Relocate to Andorra

Contingency Budget

Financial projections are an essential part of any startup’s initial planning. While it is common to include production costs, potential revenues, and other general expenses in a financial projection, one uncommon example may be a contingency budget.

This is the estimated cost of unexpected or emergency expenses that may arise and should therefore be included in order to provide the most accurate prediction possible. A contingency budget ensures the startup will have enough resources carved out to handle issues as they come up without diverting funds from other areas.

Carly Hill, Operations Manager, VirtualHolidayParty.com

Competitor Analysis

When building financial projections for a startup, it’s important to include an assessment of the competitive environment. This includes researching existing competitors in the market and mapping out potential new entrants.

All of this information should create projections that factor in market demand, pricing, industry trends, and potential growth opportunities. It’s critical to consider how the startup’s budget will influence its ability to compete with others in the market and capture future opportunities.

Ultimately, this analysis helps startups to make more informed decisions on their financial management strategy and provides them with the insights they need to remain competitive in a rapidly-evolving landscape.

Jimmy Minhas, Founder & CEO, GerdLi

Income Tax Projections

I specialize in business financing, and as a startup founder myself, I always remind founders to include income tax projections in their financial projections. It’s easy enough to overlook—you are spending a lot of energy and resources on determining income, expenses, and identifying customers—but forgetting to include income tax projections can leave you looking awkward in a meeting with investors.

Andrew Gonzales, President, BusinessLoans.com

Bottom-down Revenue Forecasting

It’s difficult to predict your sales revenue in those first few years, but if you don’t work to build accurate projections with solid reasoning, you’ll have a nearly impossible time landing investors.

Try bottom-up forecasting for a realistic projection of revenue performance. To determine likely sales volume, you start with low-level data like site traffic, customer data, or product information. You can use sales volume to estimate prices and finally land on projected revenue.

A bottom-up forecast is ideal for startups because it allows you to delve into a detailed strategy and product analysis and consider the many factors influencing revenue, like marketing, production costs, hiring costs, and more. Armed with strong reasoning, you’ll be better able to strategize and pitch potential investors confidently.

Jack Underwood, CEO & Co-Founder, Circuit

Payroll

Payroll is one of the most important things to include in any startup’s financial projections. Accurately predicting and budgeting for employee salaries and benefits can make a significant impact on the long-term success of your business, as payroll expenses normally account for one of the largest expenditures of any organization.

By taking into consideration expected changes in employment size or salary raises, a business can ensure its financial projections are realistic and will provide helpful insight into the financial outlook for the company. Payroll is ultimately an unavoidable expense for a successful startup, so it should not be ignored when making plans regarding future cash flow.

Ludovic Chung-Sao, Lead Engineer & Founder, Zen Soundproof

Macroeconomic Situation

When I was starting out my skills training business, I made sure that my financial projections accounted for the macroeconomic situation. It was important to include factors such as projected rates of inflation and interest rates in order to accurately estimate what revenue and expenses would look like over time.

Having the right financial projection was key; it allowed me to not only review the overall performance of my startup, but also take action if needed. Because of this foresight, I could scale my business much more quickly.

Derek Bruce, First Aid Training Director, Skills Training Group

Sales and Marketing Projections

Your list of expenses for your startup will probably be long, but be sure to include financial projections for both sales and marketing. Both are crucial for the initial and long-term success of your startup.

You need to devote a portion of your budget to marketing to ensure that people actually hear about your new business. Likewise, a portion needs to be devoted to your sales team to ensure those marketing leads convert into paying customers.

Kim Walls, CEO & Co-Founder, Furtuna Skin

Financing Needs

Financing needs are an important factor to consider when developing a startup’s financial projections. This means understanding how much capital the startup will need to get off the ground and sustain itself until it reaches profitability.

You can do this by creating a detailed budget that outlines all the costs associated with launching the business, including any investments in technology or personnel. It’s also important to consider any potential sources of funding, such as grants, venture capital, or personal investments. Knowing how much funding is available and will need can help to create a realistic financial projection for a startup.

Shaun Connell, CEO & Founder, Learn Financial Strategy

Profit and Loss Statement

One thing to include in financial projections for a startup is the projected income statement, also known as a profit and loss statement. This statement shows the projected revenues, costs, and expenses, and net income (profit or loss) for a startup over a period of time, typically for the next 1-3 years.

The projected income statement allows the startup to forecast its expected financial performance and identify potential financial challenges. It also helps to show investors and other stakeholders the startup’s potential for growth and profitability.

Bob McGahan, Chief Financial Officer, Shipley Do-Nuts

Projected Cash Flow

Projected cash flow will show the company’s expected income and expenses over a certain period, and will help the company plan for potential funding needs and understand the potential for profitability.

More importantly, it helps the company understand its expected cash position in the future. This information is crucial for making financial decisions, such as when to seek additional funding or when to invest in growth opportunities. Nonetheless, projected cash flow is an important metric for investors and other stakeholders as it shows the company’s ability to generate revenue and manage expenses, which is an indicator of its potential for profitability and long-term success.

Kate Jaspon, Chief Financial Officer, Baskin Robbins | Dunkin’

Breakdown of Key Assumptions

Clearly explain the assumptions and methods used to make the projections. This gives investors and stakeholders insight into how the forecasts were prepared and helps them gain confidence in the accuracy of the numbers.

For instance, if you use secondary market analysis and industry data to make an informed assumption about your startup’s revenue growth, show your investors the data sources. Then, demonstrate how you came up with the number that you are presenting to them. If you are using inputs from experts to make other key assumptions, have them break down their inputs so you can explain them to investors.

Also, be sure to identify the expert and their credentials. Do this for any financial metric you want to present, so it doesn’t look like you’re just plucking numbers out of the air. This will make your team and startup look more credible and attractive to investors.

Jonathan Merry, Founder, Moneyzine