Share on facebook
Share on email
Share on twitter
Share on linkedin

Financial projections are an important tool for all organisations. They can help highlight future issues as well as being a regulatory requirement. In the current climate they are even more critical. We therefore thought it would be useful to look at some of the key principles and tips for developing financial projections using a spreadsheet.


The projections should be in line with your Business Plan. Unfortunately, we often see Business Plans at odds with the projections. For example the business plan talks about high growth but the projections show figures in line with the previous year. The projections need to be consistent with the plans so they can highlight issues with usin e planned actions. 

Breaking down figures

It is important to have the figures in your projections linked up. So for example the interest figure in the accounts should be linked to the loan balance and an estimate of average interest rates so when the loan figure increases so does interest and bad debts.  There are many linked elements in a Credit Union set of accounts and if you dont have them linked then your model will not be flexible and changing one element wont show you all the consequences.

That average interest rate figure should be stated in a separate cell in your spreadsheet and not hidden in the formula. This has a number of advantages. Firstly, this makes it clearer how your derive at you figure. Secondly, if you are contemplating changing your interest rates you can change one cell in your spreadsheet and see the impact in your projections. It then gives your projections much greater flexibility. It usually works best to have all these variables in one place so they can easily be reviewed.

This then provides you with a model template which can be adopted and can be used to test different assumptions. It also means the spreadsheet is easier for other issuers.


It is best to be as realistic as possible with assumptions. Being overly optimistic or pessimistic can mean your projections dont highlight the issues that will arise. For example using lower growth than what is expected may mean shares and assets are understated and your actual capital ratio will be worse than predicted with high growth often leading to share growth before loan and interest grow. The problem is it is difficult to forecast how shares and loans will grow as changes in the economy, competitors and members’ behaviour can  impact these figures.

Validity Checks

It is worth also building validity checks into your spreadsheets. As the complexity of your spreadsheet grows it becomes easier for errors to arise. It is therefore worth building checks in place. Examples may include checking your profit matches the change in reserves, the balance sheet squares or cashflow matches the change in bank balances.

Regulatory Compliance

It is also worth checking capital and liquidity ratios within the projections. One of the key purposes of projections and sensitivity analysis is checking you are meeting your regulatory requirements. It is therefore worth setting up the projections to calculate these figures and compare them to the regulatory requirements.

For Credit Unions offering interest bearing shares there are criteria set by the PRA that you need to comply with with regards to projections. The PRA requirements are good practice and should be followed by all Credit Unions whether they offer interest bearing shares or not. They include preparing projections on accruals basis with adequate bad debt provisions, comparing results against projections and regular review of the assumptions. See the link below for more information on these requirements.

Time Scales

Many years ago the FSA (yes before the PRA and FCA came into existence) recommended that the projections should cover a rolling three years period. This still is a good timescale to use. Projections are estimates and it is likely that any projected results over 3 years will be too much of a guess to be useful. 

Scenario Planning

Even the best projections are a guess. It is unlikely anyone last Autumn when preparing their 2019/20 projections forecast the impact of Covid-19.  This makes scenario planning and sensitivity analysis more important. 

Scenario planning involves looking at a different set of assumptions and considering the impact. For example, at present you may be looking at different scenarios as to the impact if there was another lockdown. For most Credit Unions these scenarios would probably see bad debts and share balances increasing as lending decreasing.  These scenarios can let you see the impact on your Credit Union and help estimate the impact on your Credit Union. It is not easy to predict just what the impact on each element would be and therefore more than one scenario would be needed.

Understanding your Credit Union

A major advantage of carrying out projections and scenario planning is that you do obtain a good understanding of how your Credit Union works and what are the key elements.

Don’t forget about the projections!

Projections shouldn’t be forgotten about once created. You should be monitoring performance against projections and then considering the implications of deviation. Projections should be revised where major events occur or you are deviating from the projected performance. During the pandemic the projections will require to be updated regularly throughout the year.


A good set of projections can be difficult to put together. If you need help then please get in contact.  We have have prepared projections for many Credit Unions using our detailed templates which help us model a Credit Union’s projected performance.

Further Information

Leave a Reply

Your email address will not be published. Required fields are marked *