How can you use financial projections to overcome financial challenges in your family-owned small business?

Financial and staffing projections can be a great to estimate what the future could hold for your company by comparing where the company has been during specific timeframes in previous years. For instance, if January is historically a slow month, make plans ahead of time to avoid a cash flow crunch. Also, mapping out scheduled PTO and staffing increases supports those upcoming busy months.

Financial projections are important for understanding how to budget properly and how to set the right expectations and goals for your business. By documenting these projections, you can gather valuable data about your company.

Financial projections can help you avoid misallocation of funds, focus on the right revenue generators, and set realistic expectations. They also assist in making comparisons with previous years or quarters to see how to better adjust and prepare.

Financial projections in family owned small business are not only important as a means to make decisions to optimally manage the company. But can also help to align members of the family (as owners of the business) on key strategic decisions as not all owners/family members of the SME might be directly involved in the day-to-day business. An example would be the strategic decisions to sell, continue or restructure a family owned SME. This decision is strongly dependent on the expectations of the future potential of the family owned SME. Aligning family members on the financial projections and associated scenarios can therefor facilitate strategic decision making, which in this example is the decision to sell or continue the company.

To create financial projections, first gather your business's financial data, including sales, expenses, and cash flow. Research market and industry trends for growth insights. Set realistic assumptions based on this data, such as expected sales growth and cost changes. Employ financial modeling tools for accuracy. Regularly update these projections to reflect new data and market changes.

You can build a simple financial forecast using your existing accounting software and historical financial information without complicated spreadsheets.

Once you build your Financial projections, you can run a monthly Budget Variance Report, comparing your actual results versus your budget forecast. This report will help you make timely adjustments based on data, not just your gut.

Monthly or at least quarterly reviews of financial projections are very important in order to understand your performance and where to adjust based on insights from your data and market trends.

Having financial projections will help you set the right amount of cash reserves, distribute your budget effectively, avoid over-leveraging, and maintain sufficient liquidity to build confidence in the face of market changes.

In my experience with family businesses and entrepreneurs, there are two steps which come before explaining or showing the owner/financial rep/owner-manager a spreadsheet. As advisor I first want to understand how the business works ie how it makes money; secondly understand the issues surrounding the manager of the reporting. Then you are ready to communicate how to improve the business’s financial results.