086 23 23 525 info@accountsplus.ie

Feedback I get regularly from the clients is that they don’t know where to start with the financial projections. So in this article I want to give you a framework and an overview of how I go about doing projections.

My approach is something that has built up over time.  To help myself remember the framework I use the acronym ‘ARC’ which stands for – Activities, Resources and Costs.


Firstly, sit down and ask yourself what activities do you expect to do, or to be working on, in your business over the next period – a year, three years, maybe as little as three months, depending on what you are doing.

Now when I say activities, the obvious one is sales and everyone sits down and puts down what they think they are going to sell. But there can be other activities. For example, if you’re planning on opening a new office somewhere, say Dublin – that is also an activity.

There might be a new product that you are planning on launching in the next year – that is also an activity.

There might be other initiatives that you are planning to implement which might be a new computer system or you might want to refurbish your premises or you might want to renew your fleet of vans.

Any of those things are activities, but you need to decide what activities you are planning on achieving in the next period.


Next thing you need to decide on what resources are those activities are going to consume?

When I think about the resources I use a framework that we used to have on lean projects.  We consider the 5 Ms  – Materials, Methods, Manpower, Machinery and Money.

Sit down and ask yourself ‘if I am going to be making sales, what materials will I be using, what manpower, what overhead etc will I use?

If I am going to be setting up a new office in Dublin, what resources will I need? It might not be materials, but it might be a certain amount of my time or somebody else’s time.  Who is going find the office space. I might use an external resource, for example an auctioneer or some sort of real estate professional, to help me find the office and no doubt there’ll be a cost somewhere for that.

If I am going to be working on a new product, I might have to use materials to make prototypes, I might have labour – engineers working on it, production staff, and I may have quality control staff. So what sort of people would be working on the new product? Where will they be working? Do I have the space? Will there be incurring any extra overhead? Will they be using any machinery or equipment?

You need to review the categories – Materials, Methods, Manpower, Machinery and Money and ask yourself how much of those will you be using.  That will help you to develop a list of the resources that you are going to need, and the resources will typically be materials, labour and something to do with overheads.

You then need to collate all the information that you have. Typically you will put them into something like a spreadsheet and you schedule them out by a time period – preferably monthly but sometime quarterly can be enough to start with.


Then I put costs on those resources and I schedule the costs out by month or quarter.

Typically, you will have sales quantities and prices.  You will have materials purchases and costs.  You will have headcount and the related labour costs.  For some overhead items, you may be able to estimate the costs easily.  For other overhead items, you may need to create tables to build up the costs.

For example, if I have sales reps on the road and I am going to take on one more.  That rep may need a car, a phone and laptop, a travel expenses allowance and an entertainment allowance.  You can identify an average for each cost and build up the costs based on the number of salesmen that you have.

Do this for any other costs that need to be built up in this way.   Check against your annual accounts to make sure you are picking up everything.  If you are just starting up, look at standard business plan templates from support agencies or the internet and use those to prompt you to include everything.

When complete, you will have identified your sales figures and the associated cost figures.

Summarise into your key Reports

Organise your sales figures, your product cost figures and your overhead figures by month to give yourself a profit and loss account.    This will show what you are going to sell each month and will summarise the costs of the activities you will be undertaking each month – materials, labour etc.

You should also look at that profit and loss from a cash flow point of view.

If you are using materials today, when will you buy those materials and when will you receive it into my warehouse? Once you know when you buy it, when will you pay for it? Will you get 30 days credit, will you have to pay up front or will you get 60 days credit?

In this way, you take each of your items and you start to break them down and schedule when the money is going to flow.  Look at sales – you will have a projection of when the sales will happen and based on that you should have a reasonable idea of when the money is coming in.  If you are buying any new machinery, if you are going into a new office, when is the money going to flow for that? And then your overheads, when is the money going to move, or when is money going to flow for each of those various overheads.

This work is essential to help to build your cash flow projections.

This work will also help you build your balance sheet. When you are identifying the timing of sales receipts, you will also be able to determine how much is owing from your customers each month.  To do this you will start with your opening customer balances, then add sales, the deduct whatever is going to come in – this is going to give you your closing customer balances.

You should be able to work something like that out for every month, and you should be able to do that for your suppliers. By doing this you should be able to build a rough-cut balance sheet.

Getting Help

I know that when I start mentioning profit and loss and the balance sheet people are going to pull back a little bit, but there are tools to help with that.

You can have somebody to build a spread sheet for you, a simple spreadsheet that would do some of this for you at the start. You could get help from your accountant to do that or you can buy business planning software of the shelf such as – Business Plan Pro, which costs about $150 dollars. There are other pieces of software that could link into your accounts, and will integrate with your accounts – i.e.  software that take the figures from your accounts and move those forward.

And finally, you can simply outsource it, you can ask your accountant to do that for you. That is something that I do for a lot of clients, where they have all the knowledge and insight, and I sit with them for as long as it takes to complete the projections.  This can be as low as a half a day, but depending on business size and complexity it can take a day or two. It might take a short bit of time to get started, but what I find is that once they get the first pass of the numbers, and they see what the numbers are like, they start to want to start to do the various ‘what ifs’ – if I change it and do this what will happen or if I change it and do that what will happen.  You need to allow time for that exploration and fine tuning.


Doing the projections is a fairly straight forward process.

Ask yourself what your activities are, and when doing that take a broad view of what your activities are.  Don’t just limit it to sales.

Once you are done with activities, move on to resources that you are going to have to have to deliver on those activities.

For each of those resources – put a cost on them.

Take all that information and collate it, or put it into some sort of document. Typically a spreadsheet or a business planning software and that is going to be your projection.

Take that projection and run your business, run your accounts. Go back and look at your projection, learn from the differences that arise between these projections and the actuals. Tweak the projections and tweak how you are doing them.

And this, as I said in another article, is how you are going to learn about your business and how you build your knowledge.

If you have any questions, or items needing clarification, feel free to drop me an email to jim@accountsplus.ie.   Remember, we’re available if you want some external assistance in developing projections.