Financial projections are the part of a business plan most people either skip entirely or fake badly. Both are mistakes. Done properly, projections aren't a prediction of the future — they're a map of your assumptions. They force you to think through how your business actually works before you spend money on it.
Investors and lenders know your year 3 projections won't be accurate. What they're reading for is whether your assumptions are logical, whether you understand your own cost structure, and whether the business model makes sense. This guide builds the full picture.
The Three Financial Statements You Need
A complete set of financial projections has three components. For most early-stage businesses, the P&L is the most important — but all three matter to serious investors and bank lenders.
Shows revenue, costs, and profit over time. The core document. Answers: does the business make money, and when does it start?
Shows when money actually moves in and out. A business can be profitable on paper and still run out of cash (e.g. 90-day payment terms on invoices). Cash flow is what keeps the lights on.
Snapshot of what the business owns (assets), owes (liabilities), and the residual owner equity. Less critical for early-stage, but required for bank loans and growth-stage investors.
How to Build Revenue Assumptions
The most credible revenue projections are built bottom-up. Start from the smallest unit of revenue and build up — not from “1% of the market” and back down. Nobody believes top-down market share projections. Bottom-up is what serious operators use.
The variables you need to pin down before you can project revenue:
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Plug your revenue assumptions into a BoringRiches calculator
50 revenue models for real business types. Change your assumptions, see Year 1 and Year 3 projections live.
Browse All Businesses →The Cost Categories in a Financial Projection
Every cost in your business falls into one of these buckets. Getting this structure right makes your P&L readable to anyone — investor, accountant, or bank.
| Category | What It Includes | Fixed or Variable? |
|---|---|---|
| COGS | Materials, direct labour, shipping, payment processing | Variable (scales with revenue) |
| Gross Profit | Revenue minus COGS — the foundation of viability | — |
| Sales & Marketing | Ads, agency fees, commissions, events, PR | Semi-variable |
| Salaries & Contractors | Founder pay (if taken), employees, freelancers | Semi-fixed |
| Technology & Software | SaaS tools, hosting, infrastructure | Semi-fixed |
| Rent & Utilities | Office space, co-working, utilities, insurance | Fixed |
| G&A | Legal, accounting, bank fees, admin | Fixed |
| R&D / Product | Development costs if building a product | Variable |
| Depreciation | Amortisation of equipment and capitalisable assets | Fixed |
The 3-Year Projection Template
Here is the standard structure for a 3-year P&L projection. Adapt the line items to your specific business — a SaaS product and a trades business have very different COGS — but the overall flow stays the same.
How Investors Read Financial Projections
Experienced investors do not read financial projections as a forecast. They read them as a window into how the founder thinks. Here is what they are actually looking for.
Every revenue and cost number should trace back to a stated assumption. '£10K/month by Q3' is not an assumption. '40 customers × £250/month from LinkedIn outreach at 4% conversion on 1,000 monthly contacts' is an assumption — and it can be challenged, which is what you want.
If you're projecting 80% gross margin for a physical product business, that's a red flag. If you're projecting 30% gross margin for a pure software product, they'll wonder what's wrong with your unit economics.
2x revenue year-on-year is achievable in early stage. 10x year-on-year requires an exceptional explanation. If you're showing 300% growth, investors will want to see the specific mechanism — not 'word of mouth will take off.'
Investors in early-stage businesses expect losses. What they want to know is: how long do losses last, what's the capital requirement to reach breakeven, and is the breakeven point credible at the revenue level projected?
A founder who's never modelled their business before will often miss entire cost categories (customer support, payment processing, returns, legal). Missing costs signal inexperience. Complete, thought-through costs signal someone who has operated before.
Frequently Asked Questions
How far out should financial projections go?
For a business plan: 3 years is standard. Year 1 monthly, Years 2–3 quarterly or annually. For a bank loan application, 2 years with monthly Year 1 is usually sufficient. For an equity investor pitch, 5-year projections are sometimes requested but Year 3 is where the credibility really matters.
What if my projections show the business loses money in Year 1?
That's fine and often expected — especially for businesses with upfront setup costs, product development periods, or long sales cycles. What matters is the trajectory: when does the business reach breakeven, what does the capital requirement look like, and is the model fundamentally healthy at scale?
How detailed do financial projections need to be?
For internal planning: as detailed as you need to make good decisions. For a bank loan: basic P&L, cash flow, and a clear breakdown of the loan use. For equity investors: a clean summary model (one page P&L by year) plus a detailed model in the appendix. Never submit a model so detailed it's unreadable — it signals poor communication skills.
Should I show best case, worst case, or base case?
Present your base case as the primary projection, and note the key assumptions in the appendix. Investors appreciate when founders can articulate 'here's what has to be true for this to work' — that signals clear thinking. A three-scenario model (conservative/base/optimistic) is useful for internal planning but can overwhelm a pitch deck.
What tool should I use to build financial projections?
Google Sheets or Excel is standard and sufficient for most early-stage businesses. Keep it simple: one tab per year (or one tab with 36-column monthly view), one row per line item, assumptions clearly labelled at the top. Avoid fancy tools that hide the maths — investors often want to stress-test your model.
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Build your financial projections with BoringRiches
Use the revenue calculators to model your Year 1 numbers — then build your 3-year projections on top. Or form your LLC with ZenBusiness before you start spending money.
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