Purpose of Financial Projections

Purpose of Financial Projections

September 4, 2020 by investor

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

Financial projections also called the pro forma, is a key document you’ll need for your fundraise. 

Investors will want to see detailed, five-year financial projections as it shows you’ve thought through the financial side of the business. 

Financial projections are not about predicting the future with great accuracy, instead it shows the causality and interdependencies of your business. It answers questions such as:

If sales increase by 2X, what is the impact on costs?

If sales drop by 50%, what happens to cash flow?

A quality financial projection shows investors you know your business and have a good idea about what things cost and what customers will pay.

Investors also glean from the financials how you are going to use the funds.

Financial projections typically go out 3 to 5 years and contain substantial detail on the spreadsheet portion.

It’s not a good idea to copy and paste the spreadsheet into your pitchdeck as it comes out unreadable.

Instead, show a graph of revenue, costs, and profits and call out 3 key metrics such as time to cash flow positive, gross margins, and growth rates.


Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.


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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.

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