If you’re a SaaS startup, it’s vital to ensure your financial projections are realistic, achievable, and based on accurate data. In this article, we run through a comprehensive guide on how to build financial projections and why they’re so important to a startup. Cash basis accounting records income when you receive it and expenses when you pay them.
Cash flow statement
It allows business owners to anticipate expenses and profit growth, giving them the tools to secure funding and loans and strategize major business decisions. It’s an essential accounting process that all business owners should prioritize in their business plans. If your business has been operating for six months or more, you can create a fairly accurate cash flow projection with your past cash flow financial statements. For new businesses, you’ll need to factor in this step of creating a financial forecast when doing your industry research.
Select the Right Template or Software for Customization
We’ve already seen OpenAI’s GPT-4 32k model, for instance, saw a 67% price reduction from 2023 to 2024. Once you have calculated COGS, subtract it from total revenue to get Gross Margin. Gross Margin represents the amount of revenue available to cover operating expenses and contribute to profit.
Bottom-up forecasting
A simple spreadsheet might work initially, but as your startup grows, you’ll need more robust tools. Consider your budget – some platforms offer free plans for basic features, while others charge monthly or annual fees. Stripe’s guide on accounting for startups offers helpful advice on setting up your financial systems. This template tracks your revenue and expenses so you can forecast your profits and losses for the next 12 months. It gives an overview of revenue, cost of sales, gross and net profit, operating expenses, industry averages, and taxes.
It’s a step-by-step approach to identify, assess, and control risks that could disrupt operations. One of the most popular options for startups is venture capital funding. A way to raise money involves working with investors who believe in your business idea. Lenders and investors will be interested in your break-even point as a projection of when they can begin to recoup their investment. Likewise, your CFO or operations manager can make better decisions after measuring the company’s results against its forecasts. Do your own market research so you have benchmark data on metrics What is Legal E-Billing from peer companies – investors will often evaluate you against comparables in your industry.
- For actionable resources, explore the SBDC Financial Tools to simplify your financial planning.
- Simply put, strong accounting practices can be the difference between success and failure for a new business.
- It’s intertwined with a business’s balance sheet and income statement, which is no different when creating projections.
- For SaaS companies, this generally includes things like hosting costs, payment processing fees, and some engineering expenses related to keeping your product running for customers.
- It’s much easier to start with a solid system than to try and retrofit one later, when your business has grown and your financial data is more complex.
A financial projection is a forward-looking estimate of a business’s revenues, expenses, and cash flows over a specific time frame. It helps outline financial outcomes based on historical data, market trends, and realistic assumptions. For a business plan, it demonstrates profitability, cash flow sustainability, and growth potential, giving investors and lenders confidence in the company’s viability. Effective cash flow management is vital for maintaining the financial health of your small business in 2025.