Financial projection is an analysis that seeks to anticipate the possible profits or losses of a project.
Before entering fully into the definition of the term financial projection , it is important that we proceed to know the etymological origin of the two words that give it shape:
– Projection derives from Latin, more specifically from proctio , which can be translated as “action and effect of throwing something forward.”
– Financial , on the other hand, comes from the French financier , which is equivalent to “paying a debt” and which, in turn, comes from the Latin finis (end).
Financial projection concept
The notion of projection is used in different ways. In this case, we are interested in its meaning as planning or forecasting that is carried out in certain contexts. Financial , for its part, is what is linked to business , banks and the stock market .
These definitions allow us to understand the notion of financial projection . This is the analysis that is developed to anticipate what the eventual profits or losses of a commercial project will be. Based on a financial projection, a businessman or entrepreneur has valuable information to make decisions about their businesses.
Financial projection is an important part of planning.
Issues to analyze
In order to carry out a financial projection, it is important that the person in question proceed to thoroughly analyze and study aspects such as these:
-The market situation.
-The company in general and in depth, highlighting elements such as its production capacity, its strengths and weaknesses...
-It is important to establish the period of time in which the aforementioned projection will be undertaken.
-You have to estimate, economically speaking, the project that you want to develop. That is, you have to take into account both expenses and possible benefits, cash flow ...
-In the event that the project consists of manufacturing any element in question, it is essential that the margin calculation per unit be obtained.
-A sales projection must be undertaken.
In addition to all this, experts in these matters advise those who are going to make a financial projection in order to launch an initiative to ask their potential investors for 25% of the expected expenses, to deal with any unforeseen event. , and always have your feet on the ground.
Usefulness of financial projection
The financial projection will determine the level of expenses that the business can support, what amount it is advisable to invest for its development and when the business in question would be profitable if sales expectations are met, for example. The results of the projection could even indicate that it is not advisable to carry out the business.
Typically, financial projections are made based on different scenarios. In this way, the entrepreneur will be able to define strategies for one context or another.
Financial projections are very important when requesting financing for a project. Suppose an entrepreneur meets with potential investors to request funds. This entrepreneur makes a financial projection to demonstrate that, if he receives the money necessary to start his project, he will obtain profits that will allow investors to recover their money in a few months and even obtain profits in less than a year.