The purpose of financial projections is not to impress others. One TV or in Silicon Valley boardrooms, it often feels like people are all going to make tens of millions of dollars in the first year of business. At least that's what their projections say. And when I first started creating a projection, that's what I thought I had to say too. But projections should be used as a mirror for your own plans, and to show you if a course correction is needed. It's not a group of charts you throw around to try and impress people. A financial projection is essentially a realistic map of all your costs required to enact your plans, possible sales from those plans and products, put together to show the possibilities of growth depending on how your plans come together.
Let’s say your plan is to grow your business via farmers markets this year. If you are already at a farmers market, take all the costs required to be there (market fees, permit costs, staffing, equipment, travel costs, etc.) and map it out over the year. How much would it cost you per month to be at a new farmers market? If you’re able to do cost analysis for farmers markets that are both more expensive and less expensive for you to participate in, that’s helpful because you can take an average cost for your projection. Once you have the costs, scale them up depending on how many markets you plan on participating in. Assuming you already have information on the margin each product sold makes you in profits, you can use that information to map out how much you would need to sell at each market to break even / be profitable. To do an overall financial projection, it is essentially the same principle as the farmers market example, but with all the other plans you have for expansion all together.
I made my first ever financial projection two years into my business. I was applying for funding from a local accelerator program and it required that I project my revenue for the next five years. I was so stressed out. I had never made a financial projection and I was stuck in the mindset of “what do they want to see from my business?" When I enlisted a friend who had recently graduated business school to help me, the first thing he asked was to see my profit and loss statement from the previous year. As he plugged in the numbers from my previous year's earnings into the projection template, he also asked me questions like "how many customers did you have last year" and "what was your average order value per customer"? He then took those numbers and asked how many more customers I thought I could realistically gain in the next year based on my plans for expanding. As he asked these questions I realized that what we were really doing was using my ideas for growth mixed with my previous year's earnings to build a roadmap of goals to achieve in the next year.
A financial projection is just that -- a roadmap for yourself to see what you can realistically achieve given your previous performance and your upcoming plans for expanding. Don't fluff up your numbers. That doesn't help anyone. Even if you manage to impress yourself or even one other person, a fluffed up financial projection will not help you. It may even hurt you if it's so unrealistic that you aren't able to hit any of the goals listed.