Looking for an Investment Round? Need Financial Projections / Forecasting?

You can find many synonyms for the same task: financial forecasting, scenario analysis, financial modelling, planning, budgeting, projections, scenario analysis, ratio analysis, financial due diligence, calculations, simulations, projections, figures, numbers... However, they all relate to building a future financial model of the business and analysing it. Usually, it includes at least three monthly based (3-60+ months) calculations/reports: profit and loss, balance sheet, and cash flow statements. Different reporting, scenarios, and assumptions could benefit the entire model.

Not all small businesses and startups do it, and those who do may not always do it correctly or use it ona day-to-day basis.

When do you need a projection? Most likely during the process of attracting investments or when seeking bank loans. Practically any investor will ask you to show projections during the due diligence process. However,
I would say you need it before starting any business or new project, and it should be used throughout the project's lifespan to assist with a wide range of decisions.

When seeking investments, the larger the investment required, the higher the quality of projections expected. In many cases, investors ask their experts or accountants to scrutinise your figures. However, this is not always the case. Some innovative or even normal models are very difficult to predict, but scenarios are still required.

Who performs financial projections? There are dedicated financial forecasting experts and companies, some accountants (as discussed below), do-it-yourself solutions using Excel templates and SAAS (Software as a Service).

My first projection was done approximately 20 years ago in Excel for a £20 million business, in collaboration with the investor's accountants - Saffery Champness. It took a couple of months and many sleepless nights. Initially, it was quite challenging. However, building complex models provided valuable experience and understanding. Since then, we have completed many projections and are now transitioning to SAAS applications from Excel. We utilise a range of software applications, including Brixx, for our projects. The selection of software may vary for each project, based on specific requirements such as consolidation needs, pricing, collaboration features like sharing and team editing, and other factors.

Why did I mention that not all accountants do it? Financial projection is a specific area and task that requires expertise. Ideally, one should be an accountant or have a deep understanding of the connections between different financial aspects, taxation, and analysis. It is even better if the accountant has a commercial or management background, as they will understand the real business, not just the reporting part. Knowledge of the industry is a must, as well as familiarity with taxation, techniques, and different software applications. Other essential qualities include pragmatism, investigative skills, attention to detail, integrity, reliability, an analytical mind, years of experience, business knowledge, the ability to see the big picture, and effective communication with all parties involved. After working with numbers for many years, specialists often develop a sixth sense.
I remember reaching a point where I could predict a shopping bill of 50+ items with an accuracy of several pence (0.1% accuracy) 😊.

Recently, I came across the worst template I've seen, provided by a very large bank for a loan application. Excel is a great product that has been used for decades, and it is still widely used today. Even complex models are created solely in Excel. However, it becomes messy, prone to errors, and time-consuming when you try to customise it for your specific model, add taxation considerations, scenarios, and later compare it to actual numbers (which is important). Checking someone else's logic and formulas is another challenge. Yes, it is possible to do everything in Excel, but why waste time? There are already excellent software applications available that save you a significant amount of time. However, using these applications still requires the expertise of a specialist. I would suggest looking for a specialist who can help you with financial projections, rather than focusing on a particular software.

What about Artificial Intelligence? Can it do it? I have no doubt about it, but not entirely and perhaps not immediately. In modern SAAS applications, we already witness an increasing amount of intelligence in forecasting methodologies, prediction models, error correction, deeper analytics, and improved reporting. However, we cannot disregard the present and, in the foreseeable future, the even more crucial role of specialists who fine-tune and provide the initial models, interpretations, and tasks.

How much time and money does it take? It depends. The process starts with assessing the quality of current bookkeeping records, speaking with key management and decision-makers, reviewing the records themselves, business model, industry trends, market conditions, building assumptions models, and careful consideration of many factors. It's not just about inputting figures; if you put in rubbish, you'll get rubbish. This applies to both the specialist involved and the actual numbers and scenarios. A good freelance specialist may charge around £1000+ per day, depending on their experience, the urgency of the task, and the complexity involved. Sometimes its possible to do at fixed agreed price, but if more analysis time required, are you ready to have not reliable results? However, price is not the most important factor in this area of finance and accounting. The first question you should ask the specialist is whether they can do the job well and on time? The entire task is becoming less technical and more analytical than before.

We provide financial forecasting and model building services for ambitious startups and medium-sized businesses, as well as due diligence (which extends beyond financial aspects) for investors. Please don't hesitate to reach out to us. Currently, we do not offer training or software consulting, but we can help you create a custom financial projection model tailored to your needs.