A financial projection is a forward-looking model of your business. At minimum, you need projected revenue, projected expenses, and projected cash flow. Most projections cover 12 months in monthly detail and 3 to 5 years at an annual level. The exact format depends on who’s asking for it and why.

Start with revenue because everything else flows from there. Don’t just pick a number that sounds good. Build it up from drivers you can explain. How many customers do you expect? What will they pay? How often will they buy? If you’re a SaaS company, your drivers might be new customers per month, churn rate, and average contract value. If you’re a contractor, it might be number of jobs, average job size, and close rate on quotes. The drivers matter more than the final number because they show your thinking.

Once you have revenue, build your costs around what it takes to generate that revenue. Direct costs like materials or labor that scale with sales. Fixed costs like rent, software, and salaries that stay relatively constant. Don’t forget the easy-to-miss items: payroll taxes, insurance, merchant processing fees, software subscriptions that pile up. Underestimating costs is the most common mistake in projections.

Cash flow is different from profit. You can show a profitable month on paper while running out of cash because customers pay late or you had to stock up on inventory. Project when cash actually comes in and when it actually goes out. If you’re a startup bookkeeper client or working with someone who knows your business, they can help you think through the timing.

Show your assumptions clearly. Every number in your projection should trace back to a logical assumption. Investors and lenders will stress test these. If your revenue growth depends on hiring salespeople, show the headcount plan and the ramp time before new hires become productive. If costs drop as you scale, explain why. A projection full of round numbers with no supporting logic looks like you made it up.

Keep it simple enough to update. An overly complex model with hundreds of line items becomes a burden to maintain. When reality differs from the projection, and it will, you need to update quickly and understand why things changed. The projection is a planning tool, not a one-time document you file away.

For fundraising or loan applications, present your base case scenario but be ready to discuss upside and downside cases. Sophisticated investors will ask what happens if growth is slower or if a key assumption breaks. Having answers shows you’ve thought it through.

If you’re building projections for the first time or need something investor-ready, a fractional CFO can help you build a model that’s both realistic and tells your story well. The numbers need to be credible, but they also need to show why your business is worth backing. Getting that balance right takes some experience.