Developing Realistic Financial Assumptions

Many investors skip directly to the financial section of the business enterprise plan. It is important that the assumptions and projections in this section be realistic. Plans that report penetration, operating margin and revenues per employee figures which are poorly reasoned, internally inconsistent or simply just unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well-reasoned financial assumptions and projections communicate operational maturity and credibility.

For example, if the organization is categorized as a networking infrastructure firm, and the business enterprise plan projects 80% operating margins, investors will raise a red flag. The reason being investors can readily access the operating margins of publicly-traded networking infrastructure firms and find that none have operating margins this high.

Around possible, the financial assumptions should be based on actual results from your own firm or other firms. As the example above indicates, it is rather easy to consider a public company’s operating margins and use these margins to approximate your own. Likewise, the business enterprise plan should base revenue growth on other firms. Many firms find this impossible, since they believe they have a break-through product inside their market, and no other company compares. In this case, base revenue growth on companies in other industries that have had break-through products. If you expect to develop even faster than they did (maybe as a result of new technologies that those firms weren’t in a position to employ), you can include more aggressive assumptions in your company plan so long as you explain them in the text.

The financials can either enhance or significantly harm your company plan’s likelihood of assisting you in the capital-raising process. By doing the study to produce realistic assumptions, based on actual results of your company or other individuals, the financials can bolster your firm’s likelihood of winning investors. As importantly, the more realistic financials will even provide a much better roadmap for the company’s success.

Since 1999, Growthink’s business plan consultants are suffering from significantly more than 1,500 business plans. Growthink clients have collectively raised over $1 billion in venture capital funding, and Growthink has become the firm of preference for venture capital firms, angel investors, corporations and entrepreneurs in the know.

Growthink in addition has developed a small business plan template that allows entrepreneurs to quickly and cost-effectively develop professional business plans.