2 Reasons Startup Financial Projections Are Vital

Creating financial projections for startups can be time-consuming and complex, so what makes it a worthwhile use of your resources? Two key startup functions require accurate financial projections.

“Financial projections reveal whether startups have a chance to generate enough profit to survive.”

1. Startup financial projections form the basis of business strategy.

If you’re not basing your startup’s plans on sound financial projections, you might make decisions that incur more expenses than revenue, causing the business to run out of cash. Realistic projections help you build a financial plan for your startup business, for example, determining the investment you need to deliver on revenue growth targets and setting an appropriate expense budget. Plus, by changing variables in the financial model—such as altering product pricing or team headcount—you can see how these factors will affect the projected revenue and expenses.

2. Startup financial projections are key to securing funding.

Financial projections reveal whether startups have a chance to generate enough profit to survive. These insights help potential investors decide if a startup is a worthwhile investment, making them an essential part of any fundraising presentation. Investors will compare the business’s actual performance against the initial projections included in the business plan, so they must be as realistic as possible. If your financial projections turn out to be accurate, this shows you have a solid understanding of your startup’s opportunities, capabilities, audience, and market, inspiring confidence in investors and making the company attractive for further investment as you grow.

However, if your startup’s performance is consistently out of line with your projections, it indicates to investors that you don’t understand the market or the business’s potential and could jeopardize your chances for further investment.