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Financial projections are a waste of time. Really?!
I am not sure If I have completely missed the point here but barely 2 minutes into the course Pasan says that financial projections are a waste of time. This point is then re-iterated in the quiz and was enough to make me stop doing the course immediately.
I just don't understand the basis for this statement. Surely how well you are doing financially is a huge indicator of how well your business is doing, after all the whole point of having a business is to make money. If you don't care about making money then have it as a hobby instead! If you haven't done any financial projections then what other indicators do you have to measure your financial successes and failures.
I get that in the beginning you may never have done this business before and therefore your projections are not going to be 100% accurate but if you do your research correctly you should be able hazard a pretty good guess!
As well as the projections you make in your business plan you can also do short term forecasts once you have some business on the books which will probably vary a fair amount from your original plan, the important thing is to understand why. As a former hotel revenue manager I was always taught that a plan is what you hope to do based in the information you have available at the time and a forecast is what you realistically expect to do based on the information you have right now. A plan can be done once a year and a forecast should be done once a month for at least the next 3 months/90 days.
However you do it, surely something is better than nothing?
Pasan PremaratneTreehouse Teacher
Hey Jo Cavagnis and everyone else,
You guys are absolutely right, money is the lifeblood of a business and I agree, if you don't care about money it should be a hobby :) This stage was intended for people who are starting at the absolute beginning and have very little info about what they're getting into.
I think the confusion here is between revenue goals versus pure projections. Before you get into a business, once you have studied the market size and your revenue plans, it's perfectly fine to set goals like "I'd like to acquire X number of customers at $25 per month to hit a recurring revenue goal of $1000 for the first quarter". What I mean by projections in the video is that it's misleading to look at your business plan and make statements like "We forecast that we will do $1 million in sales by the end of the year" and take bank loans based off the fact. At this point, not having done any business, these numbers have absolutely no data to back it, are misleading and can potentially hurt you.
Of course, it's different once you have actually been in business for a certain period of time. At that point, you have data - you know your average customer acquisition rate, the monthly revenue and relevant expenses and can certainly make forward looking predictions about your monthly, quarterly or annual sales.
The assumptions made in this video however, were that you have none of that information, because you are starting out at the very beginning. Another thing to remember is that what you do is really dependent on the industry you are getting into and that for most industries starting out you are expected to create financial forecasts . These videos are centered around industries in the tech sector and it is not common practice to run financial forecasts early on.
Hope this helps :)
George Dinmore518 Points
Everything that was mentioned, is true.
However, I totally disagree with Andrews assessment on financial projections. Money is the lifeblood of every business, be it a charity or corporation, or even hobby. And if you factor in staff, then i would not say that is a hobby. And the projections would include expenses as well as revenue.
Be it a small business or large. Financial Projections is just as important in both. If not for the bank, then for yourself. Because, if you do not look after the pennies, you will not have a business to run.
Brendan O'Brien9,066 Points
I haven't finished the business plan course, but I have taken some of @pasan 's other courses and he definitely made a point about the importance of money in business. His statements in this video have specifically to with writing a business plan, and I see his point.
Writing a financial projection as part of your initial business plan is probably as useful as writing a horoscope at this point. You'll really have no data to back up your projection.
Andrew Shook31,709 Points
Jo, all of what you said is true, and if you were looking to start a venture that required thousands or millions of dollars of capital then I am sure Pasan would recommend financial projections. However, this video is about writing a business plan for a small business and as such Pasan's recommendations reflect that. If you are only going to have 4 people working at your small business, setting up things like roles is a mote point because everyone will most likely have to know everyone else job. Also, financially projections are also mote because you have more important thing to do and those projections are not likely to be even remotely accurate. Having started my own small business, I can assure you financial projections are not as important as marketing and pressing the flesh.
That's helps clear things up a lot Pasan Premaratne, thanks for taking the time to reply!
I just couldn't get my head around the concept of not doing a financial forecast and that was stopping me going ahead with the course.
Now what you say makes sense to me I can carry on :)