Financial projections
Financial projections are estimates of a business’s future revenue, expenses and cash flow, built from historical data and assumptions about future trends. BDC says they help you work out financing needs and discuss them with your bankers.
For a purchase, projections would show how you expect the business to perform under your ownership. They differ from the historical statements the seller provides. BDC advises providing financial statements as well as forecasts in a loan proposal. The buyer financing readiness checklist places them among the other items to prepare.
How BDC says they are built
BDC says to start from historical data and assumptions about future trends, then estimate expected revenue and expenses for the period. It also suggests preparing optimistic, most likely and pessimistic scenarios to see the impact of each. Because the assumptions drive the result, be ready to explain each one to a lender or accountant. See also the business plan for lenders.
What to check or ask
- Which assumptions came from the seller’s records and which are your own.
- Whether the lender wants more than one scenario.
- How far ahead and at what interval the lender wants the forecast.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernment4 key steps to plan your cash flow in the coming year
- 02Business Development Bank of CanadaGovernmentHow to prepare a winning business loan proposal
- 03Business Development Bank of CanadaGovernmentHow to write an effective business plan
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