It is incredibly important to include a narrative explanation with your cash flow projections. Typically, your cash flow projections are provided to your banker or potential investor as part of your funding application. When a banker or potential investor looks at your projections they want to clearly understand how and where you came up with your numbers. You made a number of assumptions in order to create your projections, you must clearly explain those assumptions through a written narrative. Let me give you an example of how I would write a narrative section to go along with my actual projections.
Let’s start by assuming you are applying for a $50,000 loan for your software business in order to advertise and market your product. You may want to attach a narrative section similar to the following:
Sales Projection Narrative
We assume that the $50,000 loan will allow us to drive 50,000 targeted visitors to our website over a 3 month period.
We assume a $1 cost per click based on the cost per click estimates provided to us from the Google Adwords Keyword Tool.
We assume that we will achieve a 3% conversion rate. To date, approximately 2.75% of our website visitors have converted into paying customers. With A/B testing we believe we can increase our conversion rate to 3%.
We assume that the average customer will pay $49 per month for our product based on our performance over the last 12 months.
We assume we will lose 7% of customers each month.
Sales Projection Table
Based on those assumptions our sales projections for the next 12 months are as follows:
Including a narrative will help your audience understand how and why you came up with the numbers that you did, and should help to instill confidence in the future prospects of your business.
About the Author: Adam Hoeksema is the Co-Founder of ProjectionHub. ProjectionHub is a web-based application that helps business owners create financial projections without the need for a PhD in spreadsheet modeling.