Why Investors are Obsessed with Financial Modeling and Financial Projections in the Busines Plan

 

When it comes to Financial Modeling and financial projections in business plans, investors seem sharply focused. If you’ve ever pitched to an investor or heard stories from those that have, the common takeaway might be that investors are obsessed with the numbers. It certainly may feel that way but, this shouldn’t be perceived as an annoyance or a bad sign.

It’s actually a good sign…

First and foremost, if a potential investor or other potential funder or lender is focused on asking questions about the financial projections in a business plan, it means they’re likely sold on the overall business concept. That’s a huge step in the right direction! Those considering a business plan will not focus in on the numbers until they know they matter. If the don’t think the business idea has traction, simply put, reviewing the financial modeling or financial projections is a waste of their time. So, if they’re focusing on the numbers, you’re making progress.

Digging deeper…

If they’ve moved from asking questions about the Financial Projections Business Plan and have started asking questions more based on your financial modeling, that’s an even better sign. The deeper the questioning, the more interested they likely are in investing. They have moved from believing in your business concept, to ensuring a good return is likely, to wanting to confirm the numbers are accurate.

If when they first view the financial projections in the business plan, they don’t appear to provide a return they’d find favorable, they might stop there. So, if they are asking about the assumptions behind them that would have been built into your financial modeling, it’s their version of peeling back additional layers on an onion.

It does boil down to numbers…

You’ve likely become quite attached to your business concept and to the entire business plan. After all, running an existing business or going through the tedious process of planning to launch one often becomes a labor of love. It can almost feel discouraging when questions begin to revolve solely around the Financial Projections of the business plan, or the financial modeling used to arrive there.

However, you have to remember an investor’s purpose. Their role is to spend money to make money. It will take them far less time to believe an idea in general has merit than to believe it is the right kind of business for them to invest in. They look at business ideas all the time and if they’re still investing, it’s because they are probably pretty good at discerning the good ideas from the bad.

What can take some time to figure out is how much potential upside is in an investment for them. Is it enough? How risky is it? The way they determine this all comes down to the numbers. Hence the focus on the financial projections of the business plan and then deeper into the Financial Modeling that led you to your numbers. They will even likely conduct financial modeling on the spot or after the meeting themselves for further clarification and analysis.

So, if you are presenting to an investor and all they care about is the numbers, rest assured that you are on the right track!