The Most Common Financial Projection Mistakes Entrepreneurs Make
3. Assumptions Not Based on Data
One of the best ways to combat the assumption talked above is to back your assumptions with full proof concrete data. Projectionhub gives a good illustration. If you are trying your hands at selling flower vases online, there is a definite possibility that you might assume that the average American has at least one flower vase at home, and they probably go for a new one every ten years on an average. The problem is that you have no idea how many of those potential customers will shop for a flower vase online.
4. Misunderstanding Cost of Goods Sold
It is very easy to misunderstand and misinterpret expenses in Cost of Goods Sold. These are the expenses that you would incur only if you sold a product or service; whereas, an expense that you would incur whether you made a sale or not is a fixed expense or operating expense. With that in mind, let’s compare that with “Cost of goods sold for a services business”. Since you don’t sell a product, you won’t have to bear the cost of raw materials or labor to produce the product. Instead, you might have to pay for labor to provide a service. If this is the case then it is not a COGS expense.
5. Excluding Depreciation
Depreciation can be termed as a non-cash expense, but it is an expense nevertheless. Most of the assets decrease in value each year, and there is a need to replace them eventually. Including depreciation expense in your financial projections is a very important aspect of financial planning and it demonstrates that you are thinking long term about the business. This is a very good sign for bankers and investors.
Get ready with some great ideas and some firm financial planning and start simply by fending off these basic mistakes.
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