Question

When making financial projections, how sure can you be that they will come true?

Answer 1

There is no guarantee that financial projections would get materialized as it is . However, following steps can be followed to ensure that financial projections made are proximate to the actual results :-

1 . Market survey = market survey must be conducted by the sales team to ensure what could be the sales volume and what prices are prevailing or what customer can pay for the product of the company.

2. Make efforts to determine gross margin = After knowing on what price product can be sold to the customer try to find out how much gross profit is left after reducing cost of goods sold from price of the product, it is very important in order to plan the cost of the product in advance and taking actions accordingly

3. Determine inflation rate = it is important to find out inflation rate in the market. Accordingly , provisions and adjustment must be made in financial projections. If inflation is not considered then the whole projection exercise is just a waste since inflation is the reality of this world.

4. Projection of growth rate = Be aware of expected growth of the industry and the growth rate of our business. These growth rates must be incorporated in the financial projections.

If all the above steps are followed in the projection then it may give a very close result.