The other day I was poking around a Slack community I’m part of and saw this:
This is a post by my friend Andi, who is the kickass ladyboss over at Whiskey Business. She’s putting together financial projections for a very specific project she’s working on and, like any entrepreneur in the history of entrepreneurs who has ever had to put together financial projections, she has JUST ABOUT HAD IT.
And I sympathize. Financial projections are the absolute worst.
Hwhaaat? An accountant downtalking financial projections?
Yes, I said THE worst. Don’t get me wrong, I love numbers. But I like REAL numbers. Historical numbers. Numbers that actually happened and are actually traceable. Projections are just so… fluffy.
And Andi and I aren’t the only ones that think so. Most entrepreneurs who need to come up with projections are in the same boat. We end up doing a lot of thinking, researching, modeling, and then just outright guessing.
Finally, we turn these projections over to the people who asked for them and hope they don’t ask how exactly we figured we’ll spend $24 a month on “Postage and Shipping”.
Really, with how much guessing is involved, it seems ridiculous that anyone would ever ask us to spend so much time on such an undependable forecast. But they do.
Whether for investment pitches, loan applications, or lease agreements, we’re sometimes forced to come up with tediously detailed projections on everything from revenue to office repairs. It’s just the nature of the entrepreneurial beast.
THEN, after expending everything within us to create these splendorous spreadsheets of uncertainty, people have the nerve to tell us that we’re ALWAYS supposed to have projections.
“Wait, you ALWAYS have projections? Like… this numerical monstrosity that I pulled out of my ass is supposed to be perpetual?”
“Yes,” these people say, “it’s important to have projections so that you can work towards your goals and evaluate your progress.”
Hell to the no.
I must concede: making predictions about the future of your business is crucial. Trying to build a company without direction is like trying to make a road trip without GPS (or MapQuest, HEYO 2003!).
But I have good news and better news for all you entrepreneurs who’ve been told that 200-column spreadsheet is supposed to be your go-to budgeting resource.
The good news is that NOBODY keeps such detailed projections as a tool when it comes to actually managing their company’s money. At least not efficiently.
The better news is that there is a much simpler way to predict your cash flows, work toward your financial goals, and compare your performance to your predictions.
Enter stagger charts
Stagger charts are super-simplified spreadsheets used to make goals and track your progress towards them. Here’s what they look like:
On the top row, you list the months you’re making the projections for. In the left column are the months that you’ll be making the projections in. Each month, you’ll sit down and fill out one row. Projected numbers are in gray, actual numbers are in black.
In the above example, we started in January assuming that our hypothetical company would make an extra $100 every month for the rest of the year. Simple enough.
When February rolled around, it turned out we actually beat our $200 projection and made $220! Score! The rest of the row reveals our optimism.
March hits and we had a bit of a downturn, so we updated the following projections accordingly.
And so on and so forth. It’s that easy.
If the simplicity of this chart isn’t sexy enough for you, let’s take a good look at WHY these stagger charts are so much better than your standard financial projections.
1. Projections are too detailed
When most people think “financial projections,” they think of the standard, comprehensive, dozens-of-excel-columns approach. You predict numbers for each of your financial accounts, from revenues down to office supplies.
The reality is that these kinds of projects are INCREDIBLY inefficient. The amount of work it takes to build them isn’t worth the benefits that forecasting brings.
Most people only need projections for “important” numbers. Revenue is a big one. Maybe advertising or payroll expenses are yours.
These are the numbers you really need to be projecting and paying attention to. Stagger charts allow you to make individual goals for the numbers that matter, and ignore the ones that don’t.
2. Projections aren’t flexible
You would think with aaalll those numbers floating around in those behemoth projection sheets, you’d be able to make projections for just about anything you would need.
You’d be wrong, though.
Some businesses need to set goals for numbers that aren’t actually money. Maybe it’s the amount of new clients they want to sign on. Or a quota for new projects.
Whatever they are, if they aren’t dollar signs, they aren’t on traditional financial projections. Stagger charts can be adapted to just about anything you can quantify, and this means you can focus on any metric that will ultimately make you more money.
3. Projections don’t keep you accountable
“Stagger charts help us make decisions grounded in reality, not based in aspiration. This is one of the hardest skills for entrepreneurs to develop—you have to be optimistic and realistic at the same time.”
Walter Chen, CEO and Founder of content agency, Animalz
This is by and far my biggest issue with projections, and an easy kill shot for stagger charts.
Once you update projections, your early goals are gone forever.
Every time I update financial projections, I lose my previous ones. This is a big problem! Part of becoming a good goal-setter is being able to learn from your mistakes. If you erase your mistakes each time you update, you’re losing valuable data on your build-measure-learn feedback loop.
Stagger charts document each round of updates throughout the projection period, which shows you how much better you’re getting at projections, reveals patterns in both projections and results, and ultimately keeps you accountable to the goals that you set way back when.
“Our goals can only be reached through the vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.”
Like pretty much anything in entrepreneurship, being serious about projections takes commitment. The ROI, though, is huge, and stagger charts are a much faster way to reap the benefits.
I’ve put together a template for you >> here <<, and invite you to email me, comment below, or connect on Facebook if you have questions, comments or snide remarks. I welcome each of them. Promise.