Chapter 8. Drafting Financial Projections
Creating financial projections for startups is hard. Often there is little historical data supporting the projections. Nevertheless, it is important to create projections in order to ensure that the founders themselves understand the inner workings of their business, and how it scales.
How to Properly Prepare a Financial Statement
Financial projections are generally presented in the form of a spreadsheet. While the structure of the projections will vary greatly between startups, there are some common mistakes, exaggerations, and omissions that entrepreneurs tend to make in their projections.
Here we’ll cover the ways to properly prepare your financial statements, and how you can avoid the common mistakes many entrepreneurs make.
List Deferred Revenue Separate from Other Revenue
Deferred revenue is a liability that is created when monies are received by a company for goods and services not yet provided. Deferred revenue can help inflate a startup’s numbers early on. It is important that financial projections be clear about whether there is deferred revenue included in financial projections. If it’s not made clear, investors will likely ask.
List One-Time Revenue Separate from Other Revenue