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3 Tips for Your Business Plan Financial Projections

Dec 8, 2007
Are the assumptions that are the basis for your financial projections understandable? If you've written your business plan because you're looking for an investor or lender, don't assume that the reader can understand your plan assumptions. By the time you are finished with your projections, you will be very familiar with the assumptions you used to construct your financial models. A first time reader of your business plan will not. Are you certain that you made it easy to follow your logic? It's better to explain a little more than you have to, than not explain enough.

The best projections for your forecast are well-rounded ones.

Telling the investor that his projected return is 52.444% is not any more impressive than saying you project a return of roughly 50%. Many entrepreneurs come down with a bad case of spurious exactitude when doing projections. This seems to be a highly contagious disease.

Hold the Scenarios.
Many people think that the more complex their financial models are, and the more "what if" scenarios they concoct, the higher their chances of being funded. A variation of this is the plan that has projections seemingly for decades. Fifty pages of imaginary numbers are not better than five. Particularly in this age when technology is evolving so quickly, it is impossible to accurately forecast 3 years out, let alone 7.

Concentrate instead on answering these questions: How fast are we going to use the investor's money, when does the company's cash flow turn positive, and what margins can this company earn?

The Hard Truth About Software.
There are a number of business plan software packages that sell thousands and thousands of copies. Software can be very helpful in developing financial models and preparing projections. But they are not going to write the narrative sections of the plan for you, so you may be disappointed in the results you get from using a computer program in building your plan. How can the programmers of "Super Duper Hot Business Plan Whizzo" or whatever the software is called, possibly know how your plan should look since they have never met you and do not know anything about your company? Software can't think for you.

Incidentally, for the average cost of these software packages, you can take a family of four out to dinner, and at least two of them can order dessert.
About the Author
What to know what should be in your business plan? Download a free business plan format. Dee Power has co-authored several nonfiction books including Business Plan Basics, "Inside Secrets to Venture Capital" and "Attracting Capital From Angels," Reach her through Brian Hill and Dee Power
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