How to create financial projections for your business

Let’s talk about creating financial projections in your business.

I know this can be a really scary topic to talk about which is why a lot of newer entrepreneurs might avoid it altogether! It’s common to feel overwhelmed to look at your finances because you don't have a lot of experience in this or you don't have a bookkeeper or an accountant to help you. However, when you’re starting to scale is — it's so important to get familiar with your numbers and to just play with your numbers when you're making goals!

If you are a service provider and you're starting to scale and you're wondering when is the right time to outsource or whether you should be raising your prices — you're mostly concerned about how can you are you paying yourself. That's the biggest concern for a lot of newer business owners and really just sitting down and playing with your numbers (not making them right, not making them wrong) is going to make you feel a lot more confident that you can make your business successful.

For example, if you are scaling and have a decent amount of new clients coming in pretty consistently and you're thinking, “Okay. Something's got to give here. I can't scale this much because I can't continue to serve this many clients on my own, so I need to outsource. How much should I pay someone to outsource?”

Well, if you’ve been tracking your time, you might know right off the bat how much time you spend on each client per month and each client is paying you $500 a month.

So, $500 for 10 hours a month and you want to outsource part of that client work, and maybe that's going to save you five hours a month and that outsourcing is going to end up costing you $200 a month for five hours. So you're now outsourcing that and are tightening that profit margin. Because of that $500 you're making, you're going to be paying $200 of that to outsource to someone else.

Then you want to take a close look at your expenses. Do you have expenses that go up per each client? For example, if you use Slack, then number licenses are going to increase per client. So look at your expenses and figure out, are there other expenses besides just my outsourcing, that are going to go up for each new client I'm adding, and then look at all of your expenses, how much you need to be paying in taxes — and you're taking all that into account so you’re able to see how much you have leftover.

From here, you can clearly see what the effect on your income is going to be if you do choose to outsource and you can make your choice to do so in confidence or choose to wait until you have X amount of new clients instead.

You can use the same technique when it comes to whether or not you need to raise your prices.

Now that you know your expenses, and you know what you will be bringing in per client after expenses - you can play around with the idea with raising your prices. If you raise your prices and your expenses stay the same, then your profit will increase. And by playing with these numbers and not making any number right or wrong, you can really start to get a good feeling for it and feel confident in your numbers!

By creating financial projections - you can really mindfully scale and be prepared, because what you don't want to do is get into a situation where you're scaling really really quickly, but you don't know your numbers. And so you build a business that, yes you have a lot of clients, but your profit margin isn't there, and it ends up that you're not even paying yourself as much as you used to as a solopreneur. This happens to so many business owners — they outsource without a plan, without a plan for what that person is going to do. You've now built a business that is not sustainable. And isn't supporting you and isn't supporting your overall goals.

That is why it's so important to get a handle on your numbers, even if it's just estimating. Playing with those numbers is going to have such a big impact as you're growing and scaling.