Creating Projections for Your Small Business

Beyond the business plan, entrepreneurs need a solid financial foundation to ensure success. One of the most essential tools for this is a projections spreadsheet, which helps estimate future income and expenses. Eternal Tides required more homework than perhaps other business ideas might, as we are working with a new technology with only one alternative (flame-based cremation) in the area; estimated costs and potential revenue was certainly tricky, but there were great resources to guide the process. Engaging in a careful planning period and creating a comprehensive financial plan not only inform decisions about pricing goods and services but also ensure you can cover operational costs and keep the business financially viable.

A well-designed projections spreadsheet includes estimated revenue, fixed and variable costs, and potential profit margins. Start by listing all your anticipated expenses, including rent, utilities, inventory, payroll, and marketing. This will give you a clear picture of how much money you need to generate to break even and eventually turn a profit (Burns, 2021). Be sure to differentiate between fixed costs—those that remain consistent month-to-month—and variable costs that may fluctuate depending on business activity. If you’re not sure where to start, there are plenty of templates available online: explore a few and find the version that works best for your needs and comfort level.

Next, estimate your revenue by forecasting how many units of your product or service you expect to sell each month. If you’re just starting, look at competitors and industry averages to create realistic expectations (DeThomas, 2022). This step is crucial for setting prices. You’ll want to price your goods or services at a level that covers costs while leaving room for profit, without pricing yourself out of the market.

Once you have your costs and revenue estimates, a simple formula can help you determine how much you need to sell to break even. For example, subtract total costs from total revenue to calculate your profit margin. This document should be revisited regularly and adjusted based on actual performance data.

Ultimately, a projections spreadsheet serves as a roadmap for your financial decisions. It helps you plan for the future, track performance, and adjust your strategy as needed.

References

Burns, P. (2021). Financial management in small businesses: Essential strategies. Small Business Economics, 56(1), 123-138. https://doi.org/10.1007/s11187-019-00285

DeThomas, A. (2022). Creating financial projections for a business plan. Small Business Development Center. https://www.sba.gov/business-guide/plan-your-business​