Before it starts the definition of the term financial projection, it is important that we proceed to know the etymological origin of the two words that shape it.
- Projection derives from Latin, more specifically from “protection”, which can be translated as “action and the effect of throwing something forward.”
- Financier, on the other hand, emanates from the French “financier,” which is equivalent to “paying a debt” and which, in turn, comes from the Latin “finis” (end).
The notion of projection is used in different ways. In this case, we are intent in its meaning as that planning or forecast that is carried out in certain contexts. Financial, on the other hand, is what is linked to business, banks, and the stock market.
These definitions allow us to understand the notion of financial projection. The analysis that is developed to anticipate what the eventual gains or losses of a commercial project will be from a financial projection, an entrepreneur or an entrepreneur has valuable information to make decisions about their business.
- To run a financial projection, it is important that the person in question proceeds to analyze and study aspects such as these thoroughly:
- The market situation.
- The company in general and in-depth, highlighting elements such as production capacity, strength, and weakness.
- It is important to establish the period in which the projection above is going to be undertaken.
- We must estimate, economically speaking, the project that is to be developed. That is to say; it is necessary to take into account both expenses and possible benefits, the cash flow.
- If the project consists of manufacturing any item in question, it is essential that the calculation of margin per unit is obtained.
- It must undertake a sales projection.
In addition to all that, experts in these matters advise those who are going to make a financial projection to launch an initiative that asks potential investors for 25% of what are the expected expenses, to face any unforeseen, and always keep your feet on the ground.
The financial projection will allow determining the level of expenses that the business can support, what amount it is convenient 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 convenient 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 or another context.
Financial projections are very important when requesting financing for a project. Suppose that an entrepreneur meets with potential investors to request funds. This entrepreneur makes a financial projection to show that, if he receives the money necessary to start up 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.