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Financial Forecast

The Financial Forecast section of a business plan is one section I have always had the most difficulty reviewing for clients, especially if it is for a true start-up company. Careful analysis and methodology will go a long way in drafting a reasonable and credible Financial Forecast that Venture Capital firms will take seriously. You might need some assistance from a business consultant, financial analyst or certified public accountant to help you with your estimates.

The reason why I have difficulty with the Financial Forecast section is because it is the section most subject to uncertainty. It is based on numerous factors and variables that are constantly changing with time. The numbers listed are subject to virtual uncertainty, yet you do need to show some sort of forecast to investors. ”Reasonableness” is probably the key to your Financial Forecast being taken seriously.

I prefer the shorter 2 or 3 year Financial Forecast. The five year forecasts, unless your company has a track record for a few years, are just too skeptical for me to give any real credence. I have always counseled clients to use a 2 or 3 year financial projection.

Venture Capital firms are going to examine your financial projections and grill you on how you arrived at these figures. There must be some reasonable basis for your estimates. Is it based on your past sales? Is your pricing below its competitors so you have a basis on stealing a small percentage of market share from your competitors? Is the market for your product or service growing 15% per year so you factored that in to your calculations? Do you anticipate one or two acquisitions during the first year upon which you base some of your calculations?

A good way to explain some of your calculations before the cross-examination session is to have other people grill you with questions. Also, don’t be afraid to use footnotes to help explain some of your estimates. After grilling by me of some of my clients, they have added several footnotes that added clarifications.

A good way to explain some of your calculations before the cross-examination session is to have other people grill you with questions. Also, don’t be afraid to use footnotes to help explain some of your estimates. After grilling by me of some of my clients, they have added several footnotes that added clarification and should the thought process behind the numbers. I highly suggest the use of footnotes.

Although important, your Financial Forecast and Business Plan should be well integrated and flow well. Here as some Business Plan tips you won't want to miss.

In your Business Plan you need to Make Your Company Description Stand Out. Here are some great ideas for you to consider.

The Executive Summary is a good way to get your “story” out there to interested investors. Many of my clients send out an Executive Summary to help narrow the field of potential investors before they send out their full blown Business Plan. See why you should too.