Benefits Of Using Software For Financial Statement Projections
Before we dive into the benefits of using specialised software for financial statement projections, we should emphasise how important forecasting is for your business. We go over the difference between financial projections versus financial forecasts a little bit later but in general, forecasts can inform on projections to help you start, grow, or exit your business. As one of the most common types of business forecasting, financial forecasts are what gives you insight into a company’s future financial state to inform on current decisions.
Let’s talk about financial statement projections…
- Financial statement projections vs financial forecasts
- Why are financial statement projections important?
- What should be included in financial statement projections?
- Use accounting and financial planning software for financial statement projections
- What are the benefits of integrating accounting and financial planning software?
Financial statement projections vs financial forecasts
While the terms are used somewhat interchangeably, there is a difference between a financial projection and a financial forecast.
What are financial statement projections?
A financial statement projection is a concise financial model. It helps companies determine and plan for the requirements of working capital in order to see success in business operations. financial projections are what may happen to the company in any number of hypothetical scenarios.
Generally, businesses create short-term (up to a year), mid-term (up to three years), and long-term (three to five years) projections. Each predicts future outcomes based on a specific set of outcomes and calculates outcome probabilities. Based on financial modelling techniques, financial statement projections can help answer questions that may come from investors, lenders, and other business stakeholders.
What are financial forecasts?
Unlike financial statement projections, financial forecasts reveal what is most likely to happen based on anticipated business conditions and events. Businesses of any size may use financial forecasts to create future budgets, develop financial plans, and inform on hiring needs.
Simply put, financial forecasting predicts your business performance if everything had to remain the same in the future. This could include the same demand for products, the same business operations, etc.
There are several advantages to financial forecasting, including, but not limited to:
- Attracting investors
- Determining business viability
- Planning for future expenses,
- Reducing financial risk
- Measuring and improving your business.
The difference between financial statement projections and financial forecasts
Sometimes, it can be better to digest when showcased using a practical example. When it comes to projections vs forecasts, you can try to think of it in terms of the weather.
For example, your local weatherman reports that you should expect 5cm of rain on Tuesday, based on the current information he has. This would be called a forecast as it predicts an outcome based on if the conditions stay the same as they are currently. However, if you hear the 5cm forecast but decide to plan for a scenario where you get 15cm instead, it becomes a projection.
Why are financial statement projections important?
Conducting financial statement projections is vital to both the business owner and potential investors as they can inform on whether the business will grow and be profitable.
These projections will be based on one or more hypothetical assumptions aimed to present an expected financial position. This aids in informing how the company should plan for growth according to the predicted outcomes.
How can financial statement projections help companies?
- Create a business plan aimed to win over investors
- Better know and manage finances for success
- Understand the cash position and inform on hiring decisions
- Measure how much debt will be required for business growth
- Predict how much equity the business will need in the future
- Plan to generate additional cash and revenue where needed
- Apply for loans from banks or other institutions
- and more…
What should be included in financial statement projections?
The financial statement projections are comprised of, at minimum, your Income Statement (or Profit & Loss Statement), your Cash Flow projections, and your Balance Sheet.
What are financial statement projections comprised of?
At minimum, there are three reports that you will need for financial statement projections:
- Your Income Statement will reflect your total income, income taxes, as well as net income.
Cash flow projections
- In your Cash Flow Statement, you should have a reconciliation of cash revenues to cash disbursements and would have accounted for previous balances to give you your cash revenue total.
- In the Balance Sheet would be a summary of your company’s finances organised into assets, liabilities, and equity.
There are a number of useful templates that you can find online to get you on the right track. Brixx offers a free profit & loss template, a free cash flow forecast template, and a free balance sheet template, that you can use. If you’re looking for more of an automated process rather than a traditional spreadsheet, consider looking into specialised software, like Brixx.
Use accounting and financial planning software for financial statement projections
Monitoring your company’s financial statements and the overall health of the business can greatly increase your company’s chance of success. However, manually entering, adjusting, analysing, and reporting on data can eat into key resources such as time and personnel.
While many businesses are still using manual ledgers and spreadsheets, many are turning to accounting and planning software to do the heavy lifting. With financial forecasting software, you can often integrate it with your accounting tools to provide more accurate and up-to-date reflections of your company’s financial health.
Additionally, most forecasting tools offer additional integration options to help consolidate the view of your business. By taking advantage of key automation and integration options, specialised tools can save businesses valuable resources while being more accurate than traditional spreadsheets.
While there are a number of pros and cons we could speak to for using spreadsheets versus specialised tools, each business is unique and will have different needs. It is key to find the right fit for your company, whether that be a spreadsheet template or software.
What are the benefits of integrating accounting and financial planning software?
There are a number of benefits to using specialised software for forecasting and projecting finances, especially when integrated with an accounting tool. And generally, if your business is operational, you should already be using a form of accounting software to track financial transactions. If so, it means that before you even dive into creating a financial statement projection, your Income Statement, Cash Flow Statement, and Balance Sheet, are already available to use.
By integrating your accounting software with financial planning software, you can ensure your projections are based on the most accurate numbers possible.
Improved data availability
Integrating accounting and financial planning ensures that you are able to pull consolidated reports or have the data you need to create and analyse a more traditional spreadsheet report readily available.
Increased data credibility
Including the financial statements generated from your accounting tools with your financial statement projections creates additional credibility. This can signal to investors and other stakeholders that your financial reports and insights are reliable.
While there are a number of additional benefits we could speak about, perhaps you should see for yourself why so many companies are choosing to use financial planning tools.
Some features to look out for when choosing a forecasting and planning software:
- Cash flow projections to track your company’s cash
- Professional reports with automated accounting
- Forecast calculators that automate the calculations in the background
- High-level overviews to provide a complete financial picture
- Flexible and rapid scenario testing capabilities
- Financial timelines to see when figures impact reports and more
- Sharing, export, and collaboration options
- Accounting software integrations
- 3-way forecast capabilities
- Expert customer support
Brixx offers a free forecasting tool called Brixx Foundations, where you can easily get started with the financial forecasting software without the financial commitment. Along with Brixx’s range of templates, you can use Brixx to begin effectively monitoring, analysing, forecasting, and planning, for your company’s financial future.
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