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What a CFO Taught My Startup About Projections

February 20, 2014
URL: http://www.entrepreneur.com/article/231641

Projections are a funny concept in business. On paper they mean one thing but to entrepreneurs they mean something entirely different. Think of it like a dirty, little secret. While you show potential investors your best face, you show on-board investors a more conservative picture and in house you create projections that are somewhere in the middle -- the ones you really try to meet.  

We learned that the hard way this year. When pitching investors, we used our most exciting, enticing projections. They weren't irresponsible -- we definitely didn't imply we would accomplish global domination in the year. But they were pretty sexy, we had an amazing 2012 and figured at the very least 2013 would continue to offer a similar explosion for us. Statements like, "Yes, that huge account that just emailed us a week ago? We're going to get them in January, and they'll put us in every single location within the month and so by the end of the year we'll have won everything ever" were tossed around. Of course that's not how the year went. Big accounts can take months and months to land. Who knew? Not us.

Related: 3 Simple Financial Tools to Help Track Business Success

Last year was a great, as S.W. Basics saw steady, upward growth. We know that now because we are finally consulting with a CFO who has actual real-life experience. When we first met her, we were in a full-blown panic. Why weren’t we meeting our amazing projections? She looked straight at us and the first thing she said was, “Are you in year three?” How did she know!? “Yeah, this happens to everyone in year three,” she said. The word "this" that she was referring to was the lack of planning and preparation for growth. Or as I like to think of it as an in-over-your-head feeling or a you-can’t-assume-only-the-best-will-happen feeling.

So now it’s almost like we’re starting over. We’re creating realistic projections. I’m not sure that we’ll create different versions, because we’ve learned that the panic of not meeting one doesn’t feel great. Instead, our CFO calls our new projections a dashboard. We like this way, way better. It is a detailed look at our budget and monthly growth that we hope to get almost exactly right for next year. We adjust it every month, and it carries out the changes through the whole year. We feel significantly better prepared for 2014 and more confident about what our sales are going to be. 

Related: Why You Should Ditch Your Annual Budget