Description

To produce Financial Modelling for startups, you’ll need a couple of key documents: a balance sheet, an income statement, and a cash flow statement. Once you’ve got these documents ready, you can begin making Financial Modelling. Overall, there are five main components to any Financial Modelling. Here’s our step-by-step guide for how to make Financial Modelling for small businesses:

Make a sales projection

• Put simply, a sales projection is an estimate of the amount of future sales that your business will generate. Take into consideration outside factors, such as the health of the economy, industry downturns, or whether additional tariffs will affect your inventory. You should also include the projected cost of sales (COGS) so that you can work out the gross margin.

Create an expense projection

• Next, you’ll need to make an expense projection, so that you can work out how much it’s actually going to cost you to make the sales you’ve predicted. Essentially, an expense projection requires you to predict possible expenses, from fixed costs like rent to recurring costs such as utilities. That should be relatively straightforward, but you’ll also need to predict one-time expenses, such as damage to your inventory, which can be a little trickier.

Produce a balance sheet projection

• Now, you’ll have to make a balance sheet projection, which shows the projected financial status of your business, including assets, liabilities, and equity balances. You should be able to base your projection on your existing balance sheet, assuming your business is already up and running.

 

Write an income statement projection –

• Using your current income statement, you should make an income statement projection, providing you with an estimated view of your company’s future net income. Put simply, you’ll use the sales projection to work out your gross margin (Sales – Cost of Sales), before using the gross margin to work out net income (Gross Margin – Expenses – Interest – Taxes).
  Do a cash flow projection – Finally, you should create a cash flow projection (based on your current cash flow statement), which displays all cash and cash-related activities affecting your business. You can break the cash flow projection down into relatively short periods (a week, for example) to capture the fluctuations in your business’s cash flow. Take a look at our guide to cash flow projection templates for more info.