Financial projections: Turning numbers into credible business thinking

Financial projections have an image problem, and most founders give them low priority.

They feel like guesswork – spreadsheets built to satisfy lenders or investors, not tools that actually help run the business.

To lenders and investors, poorly constructed projections confirm a different fear: that the founding team doesn't understand the logic of what they're building.

In reality, financial projections are neither fiction nor fortune-telling. At their best, they're structured expressions of assumptions, evidence and logic.

They translate strategy into numbers and create a common language for decision-making and funding conversations.

In this blog, I explain:

• why projections matter differently to founders, lenders and investors

• how credible forecasts are anchored in assumptions, evidence and logic

• how to build and present projections you can stand behind – without pretending to predict the future

Financial projections must be coherent and credible

No experienced investor or lender expects a five-year forecast to be "right". If you're seeking pre-seed investment, even a one-year forecast could turn out wrong.

What they are looking for is whether the numbers make sense, given what you know today.

Credible projections answer questions like:

• What is your revenue model?

• Do you understand what's driving revenue?

• Do you know your operating costs?

• What does it cost to acquire and serve customers?

• Have you thought through scale, constraints and timing?

• Do your financials reflect your strategy – or contradict it?

Why projections matter to you – as founder

If you've established a business, or considering it, financial projections are primarily a thinking tool.

Well-built projections help you:

• test whether your business model could actually work

• understand cash flow pressure points before they happen

• see which assumptions matter most – and which don't

• make informed decisions about:

  • the costs of supplies and hiring staff

  • customer pricing

  • the rate at which revenue and expenses will grow

A projection forces you to ask uncomfortable but necessary questions:

• Can we afford to hire this person?

• How sensitive are we to churn and conversion rates?

• What happens if sales take twice as long as planned?

Founders who avoid projections often end up managing by surprise. Founders who embrace them manage by foresight.

Why projections matter to lenders

Lenders need to assess your ability to repay, and their priority is managing downside risk.

They care about projections because they want to know:

• Can this business service its debt?

• How resilient would cash flow be under stress?

• Are assumptions conservative and backed up with evidence?

• Is there a margin of safety?

For lenders, credibility comes from realistic revenue timing, conservative assumptions around cost and a clear link between cash coming in and going out.

A projection ready for lenders should be conservative, realistic and show discipline, logic and prudence.

Why projections matter to investors

Investors use projections to evaluate their projected return on investment. They're asking:

• Is this a big enough opportunity?

• What are the unit economics at scale?

• On what is capital actually deployed?

• How does growth translate into profitability?

Having realistic projections signals that you:

• understand the market in which you operate, and its competitive pressures

• know the economic engine of the business

• know which levers drive value

• can reason quantitatively about uncertainty

Weak projections – especially those that are overly optimistic without justification – undermine trust, even when the idea itself is compelling.

What makes projections credible – assumptions, evidence and logic

Every financial model is built on assumptions. The difference between a guess and a forecast is how those assumptions are treated.

1. Assumptions – make them explicit

Hidden assumptions are the enemy of credibility. Strong projections:

• clearly state key assumptions (pricing, growth rates, churn, costs)

• tie assumptions to the realities of how the business operates

• acknowledge uncertainty instead of burying it

For example:

• "We assume a 3% monthly churn rate based on our research on competitors' churn and comparable benchmarks at our price point."

• "Sales cycle length starts at 90 days and improves as awareness of our brand increases."

If you can't articulate your assumptions, you can't defend your numbers.

2. Evidence – anchor assumptions in reality

Evidence isn't certainty – it provides reference points. Useful evidence includes:

• Historical performance (even if limited)

• Market benchmarks and industry data

• Pilot results or early customer behaviour

• Competitors/comparable companies at a similar stage

Early-stage founders often say, "We don't have data yet". That's rarely true.

You can still provide evidence of customer interest and show that your assumptions are informed. Evidence transforms projections from opinion into analysis.

3. Logic – make sure the numbers tell a consistent story

Logic is where many projections fall apart. Some common red flags are:

• revenue growing faster than headcount with no explanation

• costs staying flat while the business scales

• cash flow improving without any operational justification

Credible logic means:

• growth has a mechanism (increased sales capacity, marketing spend, distribution)

• costs scale in line with activity

• timing makes sense

Lenders and investors will trace your projections line by line, so the story must hold together.

Building projections that support real decisions

Good projections are purpose-built.

Start with the drivers, not the statements

Instead of beginning with a projected income statement, start by explaining:

• how you acquire customers

• how much they pay/project they'll pay

• how long you expect them to stay

• what it costs to serve them

From these drivers, financial projections naturally follow. This approach keeps the model grounded in reality, makes assumptions visible and allows scenarios to be tested easily.

Model scenarios, not just one outcome

Single-case projections invite false confidence. At the very least, provide:

• A base case (most likely)

• A downside case (things take longer or cost more; revenue slower than projected)

• A break-even analysis

Scenario projections demonstrate professionalism and help everyone involved understand risk and potential reward.

Keep the model understandable

If you, an investor or a lender can't understand what drives revenue, why costs behave as they do and when cash becomes constrained, the model isn't serving its purpose to anyone.

Presenting projections in funding conversations

You build trust by being clear. How you talk about projections matters as much as the numbers themselves.

If you don't understand the projections, or you ask someone else to talk about them, it's likely your funding request will be unsuccessful.

Strong founders:

• walk through key assumptions themselves before showing totals

• explain risks and where uncertainty is highest

• invite discussion and never get defensive

• show how projections inform their decisions, not just valuation

The most powerful phrase in a funding conversation is: "Here's what would need to be true for this to happen." That signals honesty, understanding and control.

Financial projections as a tool you can stand behind

When you treat projection as a guessing exercise, you're not credible. Financial projections aren't about predicting the future, but showing that you understand:

• the risks and opportunities in your business model

• your strengths and weaknesses

• any threats and constraints

When you stand behind your projections – even when challenged – you signal something far more valuable than precision, which is sound judgement. And judgement is what funders ultimately back.

People also read

• An essential guide to cash flow management

• How to create a simple cash flow projection for your business

• Cash flow forecasting: Reducing the risks when business costs increase