Financial Projections

Let’s look at an example of how financial projections can help manage your business. We will assume you are a highly motivated entrepreneur and you want to make sure your business is making a profit by the end of the first three months. Let’s say that on April 1st you open a part-time business that sells beach chairs in Florida. Your sales goal is to sell 500 units (beach chairs) in the period from April 1st to June 30th.

The sales price of each chair is $15 and your projected sales revenue is $7,500. You also estimate that your cost of goods for these 500 units is $7.50 per unit, which will mean your total cost of goods sold is $3,750. Thus, you expect to make a gross profit of $3,750 in this initial three-month period of business.

Out of that gross profit of $3,750, you will also need to pay certain operating expenses, including $25 per month for a vendor’s permit and $40 per month for advertising. Your estimated total operating expense for this time period is $195. If you also owe 10% of your gross profit for taxes, what is your projected net profit for the initial three months of business?