Updated: Nov 1
Predicting the future isn't easy. Have you ever made a bracket for March Madness? People will sometimes get the overall winner right, but no one has ever gotten every pick right. Your business is (hopefully) easier to predict than March Madness but it's still far from easy. Keep reading to learn 6 simple guidelines how to make financial projections for 2024 (with data!).
Most folks need to be able to look at the current year and use it as a base to predict the next year, along with anything new or any changes they think are coming.
But what if you're not a financial wizard? Better yet, even if you are a financial wizard, what if you just don't have the time?!
Client work doesn't get done when you're planning for next year…
Let's take the easy path and get to something pretty close to reasonable in a short amount of time.
Financial projections the easy way
Whether you are a financial wizard or not, there are some basic guidelines you can follow to make projections for your next year in business.
1. Understand the current year
You’re currently in it - you’re living it now. There aren’t many secrets here - trust your gut. You know the good and the bad of the year - make sure you take a step back from the day-to-day and get both good and bad top of mind as you progress through the projections
Example… we’ve had really good referrals that converted and leads from Google ads that converted well. Our email newsletter didn’t feel like it was successful enough though.
2. Quantify the current year
How much did you bring in revenue-wise? What was your average gross margin % and net profit %?
These are important to set a baseline for next year. If we want to grow 10% next year, we have to know what 10% is in terms of dollars.
Example… we brought in $1M in revenue (~$83k per month) at a gross margin of 75% and net profit margin of 15%. Growing by 10% would mean $1.1M in revenue and those additional dollars could come from the things that were working well, potentially.
3. Quantify the good and the bad parts
What worked and what didn’t work is great to know as an anecdote. Let’s put some numbers to it though.
How well did it work? What does success look like? Is it repeatable? How much can it improve or change next year?
Example… we got 20 referrals throughout the year and 15 converted (we’ll take that!). Our conversion rate in our newsletter was 0.5% though (needs improvement).
4. Set goals
This can be the fun part - it’s slightly less about predicting the future and more about dreaming what you want to do.
Do you have any new ventures you want to include? We know you've got some fun stuff cooking! Should it make the projection calculations?
Example… if you’re currently at $1M in sales, let’s figure out if $1.25M or $1.5M is possible. Or heck, why not $2.5M?? Obviously, you have to show some sort of track record to justify those lofty goals, but if the data is there to support it, let’s build a plan!
There is no such thing as an unrealistic expectation… just unrealistic timeframes.
5. Establish how to get to those goals
Now we start to try to predict the future. Not so bad though, right! 4 steps in, all we’ve done is address what’s already happened and dream about what could happen!
But now we have to put some realistic plans on paper.
Example… if we want to grow revenue 50%, and that’s $500k, how do we do it? If an average sales price is $10k, that means we’d need 50 new customers. That’s about 1 new customer a week.
Where are those customers going to come from? Circle back to what worked well and let’s leverage that and see if it can work even better or it can work just as well, but increase the total number of clients it would result in by creating a bigger initial pool.
6. Put everything together
Now that we’ve established where we are, how we got there, where we want to go, and how we want to get there, let’s make this digestible. And changeable - in my corporate days, we had to cut off the process by the 15th iteration each year. So make sure this is a flexible process.
How do we do all that? The combination of data and intuition culminates in a projection tool and dashboard.
This takes actual data, spits it out in simple, digestible pieces that you’ll build your projection from, and allows you to change it as you get deeper into it and scenario test.
More on the “how to” build that below…
Financial Projection Summary
Everyone knows they should plan what next year will look like. It helps set goals, drive daily work, makes the team feel more fulfilled, etc.
In order to plan, it needs to be simple yet informative.
The best way to have a simple yet informative planning foundation is to have a data dashboard.
You'll be able to see exactly what worked, how well it worked, and where you're trending so you can make an informed, data-driven decision.
How to build a flexible financial projection dashboard that will help your projections and planning
We've got some more relatively simple steps here too!
1. Establish your data sources
All we mean here is basically use QuickBooks, Xero, or whatever you use for accounting to get financials, along with any other relevant info you'll need
That relevant info is usually along the lines of marketing (specifically number of conversions), and operational (how long to onboard someone, capacity, inventory, etc.)
The additional info can normally be backed into from the financials though, so, in most businesses, financials is the main piece you'll need
2. Establish how you want to project
Monthly, quarterly, 4 week chunks, etc. Whatever makes sense for your business - no need to overthink this step.
Get the data you need into something you can manipulate it in
Normally this is Excel or Google Sheets
There are other tools out there that can help with this (and companies like us) but we're talking DIY in this post!
3. Create flexibility
When making projections, try to tie things back to a set of inputs
Example… revenue growth percentage. If you want to change this from 10% to 15% (or want to scenario test multiple numbers), don't build the model so you have to go input each individual cell and change 0.10 to 0.15.
Just link it to a set cell so you can make one change and everything else changes from it!
4. Build a summary
This is where you can go wild with a full dashboard or just highlight some of the most important metrics you're projecting.
You can do this by doing something like manually entering total revenue for this year, linking to a cell that has the resulting revenue for next year, and do some simple division for year over year growth!
Think of this in simple terms. If someone asks, "what are you projecting next year to be like", they're not asking about your IT expenses that are going up 5%. They want to know Revenue, Net Income and year over year growth. Keep it simple and highlight the main pieces that can be a summary of a summary, basically.
Be data-driven! With or without us!
This, of course, isn't a crazy in-depth step by step guide, but it hopefully gives you some guidance and structure to generate ideas for you!
This is the whole secret formula we have though. We encourage people to do it, even if it's something quick in Excel!
We also are happy to do it for you, but what makes us the most excited is people doing data-driven planning, however they choose to do it.
Pineapple is a data analytics company ready to help you become data-driven! We help analyze and visualize your data in custom dashboards so you can see your full business performance at a glance, and provide analysis to drive your strategy. Our interactive dashboards will save you time, provide deeper insights & analysis, and help you make better business decisions.
Learn more about our custom dashboards: