Well-organized and easy-to-read financial projections (also known as pro formas, financial forecasts, or financial analysis.) will significantly strengthen your business plan by reinforcing your arguments with numerical data. Solid financial projections demonstrate to potential investors that you have taken the time to “crunch the numbers” and make sure your reasoning is not based on pure conjecture alone.
DIVISION OF DATA INTO DISCRETE PERIODS
Your data must be divided into specific periods of time for the financial projections to make sense. Financial projections generally are divided into either quarters or annual periods.
RANGE OF DATA
Financial data for start-up companies are typically projected over a three (3), five (5), or seven (7) year range. The time period for your projections should depend on the length of time it will take for your projection to realize a return on investment. If for example, you know a regulatory approval process will taken six years, running financial projections for only five years will not paint an accurate picture.
FORMATTING FOR READABILITY
Financial projections can appear in a variety of formats. Your financial projections represent an opportunity to tell your story using a different method. Well-formated financial projections that clearly communicate data in an easy to read fashion will significantly strengthen your arguments.
Clustering your data into broad categories will significantly increase the clarity of the information you want to communicate. Financial data in business plans are typically presented in three major clusters of information:
– Projected Income Statements
– Projected Cash Flows
– Projected Balance Sheets
AVOID SPREADSHEET MYOPIA
A common mistake when it comes to creating financial projections is to assume that more information makes for stronger financial projections. Presenting too much information can lead to densely packed spreadsheets that overwhelm the reader and obscure the select pieces of information that are truly important.
IF YOU REMEMBER ANYTHING, REMEMBER THIS…
Everything you find here is designed to help you write a better business plan. Take what you like, ignore what you do not. The most important thing to remember is that there is no single “right way” to write a business plan.