Projections Are Your Crystal Ball

I always create a full business spreadsheet–every income and expense item all loaded onto one equation-backed, all-encompassing spreadsheet. This may be complex with many sections or it may be a simple one. Excel is fine. It is a fantastic tool as it allows you to see an entire business in one glance, and that’s the objective, to see the entire business in one view. It shows break-even point, overhead burden, gross profit and net profit. It shows monthly movement of all the numbers and lets you see well in advance the peaks and valleys, loss and profit. It tells you if there will be temporary losses, how much loss you will experience and when it will occur so you can make the appropriate adjustments to smooth the wrinkles out. It tells you if you are going to hit a wall, require cash, inventory,  etc.

Best of all, it allows you to plan. Essentially, it’s your crystal ball, a peek into the future. Most importantly, it is extremely detailed and in addition to giving you the exact information you are looking for, it frequently reveals many surprises both good and bad. Of course, since we are in fact projecting, once you see the results  you can change your reality, even if only illustrative, with the strike of a key. See what happens if you do it another way, asking “what if?” and making whatever changes you may want to see. Plot a new path based on your interactive numbers and see what will happen. What a wonderful tool this can be.

One word of caution–be brutally truthful with your estimates. As always, junk in, junk out. I frequently see people artificially either reducing or increasing projected revenues to reach a hopeful or conservative result, or overstating expenses to be conservative. WRONG approach. Do not editorialize in your projections. Tell the truth, be as accurate as you can or the tool will not provide you with the information you want or need. This is no place to be either conservative or optimistic but it is the place to be brutally candid. That’s the baseline. Even if your projections end up being wrong, at least you did not purposefully fluff or deflate any of the numbers. Tell it like it will be to the best of your ability.

Then, review it often and refine it, make further adjustments and continue to see what effect the changes you make have on your business reality. It’s a guiding light, a tool and a map, a view into the possible future, a projection. It is a very valuable tool that no business owner should be without and every business owner should review it and make adjustments monthly at least, weekly if possible. Track, monitor, and control. These are the guiding points for managing a small business and the projections, your cash flow pro forma, is a major tool in helping you accomplish this. Use it.