Financial projections should show how the business expects to operate after the loan is funded. They do not need to predict the future perfectly, but they should be explainable. A lender should be able to see where revenue comes from, what costs move with sales, and which expenses are fixed.
Begin with revenue assumptions. Estimate sales by product line, service type, customer count, job volume, contract pipeline, or another driver that matches the business. Avoid starting with a target profit and working backward. The revenue model should reflect how the business actually sells.
Next, review cost of goods sold and direct costs. If materials, subcontractors, merchant fees, packaging, freight, fuel, or labor move with revenue, include them in a way that scales with sales. This helps the projection show gross margin instead of only top-line growth.
Operating expenses need the same discipline. Rent, wages, insurance, software, utilities, marketing, debt payments, and owner draws should be realistic for the size of the business. If an expense increases over time, explain why.
The best projection packets include a short assumptions narrative. That narrative should explain the source of the numbers, seasonality, ramp-up timing, and any major changes after funding. A lender can question the assumptions, but clear assumptions are much easier to review than unexplained spreadsheet outputs.