Financial Glossary
Financial projections
Financial projections are structured forecasts of a company's future income statement, balance sheet, and cash flow statement, built from quantified assumptions about revenue growth, pricing, cost structure, capital expenditures, and working capital requirements. They serve multiple purposes: internal budgeting and resource allocation, lender underwriting (most credit facilities require annual projections), investor fundraising materials, and board-level performance monitoring. Projections are most credible when they show the assumption drivers explicitly, model multiple scenarios (base, upside, downside), and reconcile to historical results.
Problem & Application
A campground operator seeking an SBA loan submits three-year financial projections showing 20% annual revenue growth. The lender's underwriter asks for the unit-level drivers behind that growth rate: current occupancy, planned new sites, historical seasonality, and comparable operator performance. If the 20% growth rate is simply extrapolated from last year's good season without supporting assumptions, the underwriter will discount the projections and size the loan conservatively. A well-built projection would show: 5% rate increase on existing sites, 15 new hookup sites coming online in year two at 65% first-year occupancy, and a new glamping section in year three at a premium nightly rate. Each driver is separately modeled and totaled, giving the lender -- and the operator -- a basis for evaluating whether the assumptions are realistic and which ones are most sensitive to market conditions.
In Short
Financial projections are essential for guiding business strategies and securing investments but should be regularly updated and monitored against actual performance.