Financial projections are estimates of a company’s future financial performance based on historical data, market analysis, and strategic planning. These projections typically cover a specific time frame, often three to five years, and are used for various purposes, including securing financing, guiding business decisions, and evaluating potential investments.

Characteristics
– Forward-looking: Financial projections focus on anticipated future performance rather than past results.
– Data-driven: They are based on historical financial data, market trends, and economic conditions.
– Assumption-based: Projections rely on assumptions about future events, such as sales growth, expenses, and market conditions.
– Time-bound: They are usually created for a specific period, often broken down into monthly, quarterly, or annual forecasts.
– Comprehensive: Projections typically include income statements, cash flow statements, and balance sheets.

Examples
– A startup may create a three-year financial projection to attract investors, outlining expected revenue growth, operating expenses, and cash flow needs.
– A business owner planning to sell their company might prepare five-year financial projections to demonstrate future profitability to potential buyers.
– A company looking to expand its operations could develop financial projections to assess the feasibility of the investment and secure financing from lenders.