A financial projection is not just about cash flow forecasting.
In the world of e-commerce and online business, your money is just as highly volatile as your sales are unpredictable.
You may have 10,000 products, and only 10 of them are moving. So you’ve got to know how to streamline, simplify, and reimagine how this could work for you at scale.
So whether you're one person or a company of 10 to 100 people, having financial projections is a crucial part of your scaling process that you need to have in your business.
5 Baby Steps to Financial Projection
1. Bake the money.
There is a process called the financial pro forma, which means you've got to “bake the cake.” You're basically outlining how your business is going to be viable.
2. Make the money.
You don't have the privilege of looking forward when you don't have the present really dialed in.
3. Record the money.
Have the systems in place as well as the facts.
4. Direct the money.
Manage the cash that's coming in. As Dave Ramsey says, if you don't tell your money what to do, your money will do what it wants.
Turn your cash-eating monster into a money-making machine.
You need to have methods in place in terms of what to pay yourself as an owner, what you should be putting back in tax, what you should be allocating to profit, and what your operating budget can become based on your revenue coming in.
5. Predict the money.
If you want to be more profitable, you need to predict the money. What do you think is coming and what do you need in order to achieve what you want? Most people want more than they currently have and they have goals, but you can't get there unless you're predicting,
In predicting your money, start with your sales and cash. The sales are where everything comes from so you've got to start there. But you can't ignore the cash either.
Not all sales are created equal. So if you’re just focusing on predicting sales and you didn't count the cost of what it would take to produce those sales, then you could end up in worse shape.
The whole idea is to put you in forward-moving momentum. Profit is measured in time, energy, and money. So you’ve also got to count the cost of time, energy, and money.
If you want to learn more about creating your own financial projections, check out 051: Baby Steps to Financial Projections for Your Online Business