Startup businesses may struggle with making revenue projections, especially since forecasting functions require technical expertise in financial accounting. However, without revenue projections and forecasts, you will have a hard time convincing investors to put money in your business.
What is a Revenue Projection?
Projected revenue is the estimated income a business will generate in a given period. These projections are often made on a monthly, quarterly, or annual basis. A number of factors are taken into consideration in calculating your revenue projections. These include your previous performance, consumer insights, market trends, and the lifecycle of your products or services.
Making accurate revenue projections require expert insights and keeping in mind all the factors that can affect your company performance. Here are some tips to help you make revenue projections for your startup:
Tip #1: Be mindful of your expenses
Forecasting is all about planning, and as a startup, the easiest way to do that is to map out your expenses. Create a comprehensive list of all your business expenses such as fixed costs of overhead costs, followed by the cost of goods sold. Putting up this master list will help you identify the best way to manage your cash inflows or the money coming into your business through retail sales.
Here’s an extra tip: Upon calculating your business expenses, be extra careful of doing estimates. The safe course is to double your estimates, just to be sure you won’t be left with serious budget deficit issues in the long run. You can also use business expense tracking tools to help you in the process.
Tip #2: Make projections using both a conservative and aggressive approach
As a business owner, you must understand that there is no single way to forecast your revenues. As such, you need to find the perfect balance between a conservative case or the practice of overstating your financial performance; and an aggressive case, which is the exact opposite. Balancing these two revenue projection models will help keep you motivated even while you’re constantly doing a reality check.
Tip #3: Set the correct ratios
Finally, you can cap off your revenue projection initiatives by resorting to the simplest way to do forecasting: check your key ratios. Key ratios accurately depict the current financial status of your company. Hence, looking through your key ratios and making sure that it’s at par with your current business model will help ensure that your projections are sound.
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Establishing an accurate set of revenue projections for your startup is not a walk in the park. But the outcomes of getting it done correctly and using it to your full advantage could spell the difference between the success and failure of your enterprise.
This article was first posted 02 November 2015 and edited 27 January 2021.