Guide
How to build financial projections
Projections are not predictions. They are a structured statement of what must be true for the business to work — and what happens when it is not.
Build projections from the bottom up: volume × price for revenue, then fixed and variable costs, then cash timing, then the funding schedule. The P&L is the summary; the assumptions page is the actual work.
Start with the assumption sheet
One sheet, every input, each with a value, a unit and a rationale.
| Assumption | Example | Basis |
|---|---|---|
| Average price | SAR 85 | Competitor pricing, tested with customers |
| Units per day | 45 | Capacity estimate, ramped over months |
| Trading days | 26 per month | Operating calendar |
| Cost of goods | 32% of revenue | Supplier quotes |
| Rent | SAR 90,000 per year | Quoted lease |
| Staff | 6 FTE | Operating plan |
| Salary burden | 1.25× base | Employer costs, estimate |
If a reader disagrees with an input, they should be able to change it and see the effect. That is the point of a model.
Build revenue in three layers
- Capacity — what the operation can physically deliver.
- Demand — what the market is likely to buy, by month.
- Ramp — how quickly you reach that demand.
Most plans assume demand equals capacity from month one. That is almost never true. A ramp curve — 40% of capacity in month one, 70% by month six, 90% by month twelve — is more credible and produces a more realistic cash requirement.
Costs: separate the three kinds
| Type | Behaviour | Examples |
|---|---|---|
| Fixed | Does not move with volume | Rent, salaried staff, insurance |
| Variable | Moves directly with sales | Materials, packaging, delivery |
| Step | Fixed in bands | Additional shift, second location, new equipment |
Step costs are the ones founders forget. Revenue grows 40% and suddenly a second supervisor, a second van or a bigger kitchen is required.
Cash flow is the survival sheet
Profit and cash diverge for four reasons:
- customers pay late;
- you hold inventory;
- you pay suppliers before you are paid;
- capital items are bought up front.
The cash flow statement should show opening cash, receipts, payments, and closing cash by month. If closing cash goes negative, the model needs either more funding, different payment terms, or a smaller scope.
Break-even
Break-even volume = fixed costs ÷ contribution margin per unit.
Show it in units and in revenue, and show the month in which the business is projected to reach it. Label that month as a model output, not a promise.
Always include a downside case
One scenario is a forecast; two scenarios are analysis. A simple structure:
| Scenario | Change | What it tests |
|---|---|---|
| Base | Plan assumptions | The expected case |
| Downside | Volume −20%, ramp +3 months | Whether the business survives a slow start |
| Upside | Volume +15%, faster ramp | Capital efficiency and capacity limits |
If the business only survives in the base case, the funding ask is too small or the cost base is too high.
Practical formatting rules
- Monthly for the first 24 months, annual thereafter.
- One currency, stated.
- No hard-coded numbers inside formulas.
- Round outputs; keep precision in inputs.
- A one-page summary sheet that a lender can read without opening the rest.
For a commissioned model, see financial modelling; for the fuller document, business plan writing.
Ramp and seasonality, together
Two assumptions do most of the work in a small-business model: how fast demand builds, and how it varies within the year. Modelling them separately produces a smooth line that never exists in reality.
Illustrative structure for a fictional business.
| Month | Capacity | Ramp % | Seasonality index | Modelled volume |
|---|---|---|---|---|
| 1 | 1,200 | 35% | 1.00 | 420 |
| 2 | 1,200 | 45% | 1.00 | 540 |
| 3 | 1,200 | 55% | 1.05 | 693 |
| 6 | 1,200 | 75% | 1.10 | 990 |
| 9 | 1,200 | 85% | 0.85 | 867 |
| 12 | 1,200 | 95% | 1.15 | 1,311 |
The dip in month nine is the seasonality index falling. A model without that column would show steady growth and understate the cash needed to survive the slow period.
How to defend an assumption
When a reader challenges a number, the answer should be one of:
- "It is a supplier quote, dated 12 October."
- "It is the rent in the draft lease."
- "It is our judgement, based on comparable businesses, and here is the downside case if it is 20% lower."
What destroys credibility is the fourth answer: "It seemed reasonable." Every assumption should have a basis that can be said out loud in a meeting.
When the model says the business does not work
Change one variable at a time and see what happens. Often the answer is not more revenue but a smaller cost base: a cheaper unit, a narrower menu, fewer staff at opening, a phased fit-out.
If no combination produces a viable business, that is a finding worth acting on before any money is committed.