Financial Projections Aren’t Unique to the Business Plan – You Can Find Them in the Information Memorandum (and Other Places) Too

It is quite common to hear about Financial Projections in the business plan but, that’s not the only place you will find them. They exist in many other key business documents as well, like the information memorandum. The information memorandum is similar in many ways to a business plan but, beyond that, there are several business documents in which you’ll find financial projections.

Financial Projections Defined

Financial projections - whether in the business plan, Information Memorandum, or anywhere else - are often confused with financial forecasts and financial models.

According to study.com, “A financial forecast is a prospective financial statement that is put together based on a belief of an entity's expected financial position for the coming months or year. These assumptions are based on what conditions may exist in the future for that entity. […]A financial projection is different in that it is a hypothetical guess as to what will happen in the future. A financial projection is an assumption about an entity's future operations and cash flow.”

Financial projections in the business plan are also often confused with financial models. As explained by Corporate Finance Institute, “A financial model is the summary of a company’s performance, based on certain variables, that helps the business forecast future financial performance. In other words, it helps a company see the likely financial results of a decision in quantitative terms.”

Financial Projections in the Information Memorandum

Financial projections in the business plan are usually the first thing people consider when they hear the term financial projection. As already mentioned, that’s not the only place that they exist. Another common place is in the information memorandum.

An information memorandum is similar to a business plan in a number of ways. It has many of the same core sections. It is also meant to sell the business. Though, in the case of the information memorandum “sell” is usually literal. Whereas in the Business Plan that is meant figuratively. In either instance, despite the audience being different, the financial projections will be quite similar.

These are the two formats where the financial projections tend to be quite complete. They will closely resemble the traditional financial statements that are prepared monthly.

Financial Projections in Other Places

Besides the information memorandum, there are a number of business documents which will showcase financial projections other than in the business plan. One thing to realize is that some financial projections are more detailed than others.

Typically, financial projections in the business plan and information memorandum will be quite detailed and lengthy. In other business documents, like the pitch deck for example, they will be abbreviated. Other condensed versions may be found in a teaser or executive summary too, for example.

In these cases, it will focus only a top line information, typically including only revenue, total expenses, payroll/labor information, total profits, and cash flow information. Depending on the audience they may be more detailed but, that is a standard overview of what they will look like for consolidated purposes.

It’s easy to see that Financial Projections are varied based on the document they are in. They are also more common than people realize and differ in important ways from financial forecasts and financial models.

Breaking Down the Main Sections of a Business Plan or Pitch Deck

 

A Pitch Deck is an abbreviated and more visual version of your business plan. While both will cover the same basic concepts, they way they are presented and broken down will differ considerably.

The Business Plan Breakdown

Not every business plan will have the same exact sections. Each Business Plan will – and should – be tailored to the exact audience. They usually will contain the following sections at a minimum. Some may contain others or break certain parts down further if necessary.

Executive Summary – A brief overview of the entire business plan. This section is usually written last.

Industry Analysis – An overview of the entire industry. It will usually touch on the history of the industry, the current status, current trends, and future predictions.

Market Analysis – This section of the business plan will focus on the market. This may include the exact location in which you operate and the target market(s) (in other words, customers) you intend to pursue.

Marketing Plan – A description of how you plan to reach and appeal to your target market(s).

Personnel Plan – One of the key aspects of your business plan is who is going to run it and what experience they have. Even the best ideas will fail without the right people, so the personnel plan is especially important.

Financial Projections – This is where you will present historical information about the company’s performance (if applicable) as well as the future expectations. The Financial Projections in the business plan usually look 3 -5 years ahead.

The Pitch Deck Breakdown

When it comes to the pitch deck, the list of regular or expected sections is longer but, the amount of information in each section will be considerably shorter. This is because the pitch deck is presented in a slide format, so you need to keep the information brief. The goal is to gain interest in reading the full business plan.

Problem(s) – Every product or service needs to be solving a problem or filling a gap in the market. This is where you present the issue your product addresses.

Solution(s) – After identifying the problem, you explain how what you offer will provide the solution or fill the missing need.

Product/Service Description – At this point in the pitch deck you will go a bit more in depth about the product(s) or services(s) that will be offered.

Business Model – Here you will give the general structure of the business and how it will run, operate, and generate revenue.

Traction – If your product or service already exists, you will explain the interest you have already generated or sales you have already made in this part of the pitch deck.

Industry and Market Overview – A brief description of the overall size of the industry, what your market is, and the potential in the market.

Competition – Key competitors can have a tremendous impact on the ability of your business to succeed or the potential of market share it may achieve.

Competitive Advantages – This slide of the pitch deck will explain how your business will fit in with or overcome the competition.

Market Approach and Strategy – With your target market identified earlier, here is how you will cover the key points of your plan for reaching them.

Team Bios – As mentioned in the business plan section, the team is very important. This slide of the Pitch Deck is where you will call out the most impressive aspects of the teams’ experience.

Deal Description – Most pitch decks are created for potential investors. Here you will list what you need from them and what you are offering them in return.

Financial Projections – Select pieces of information from your full projections. Usually touching mainly on total revenue, total expenses, profits, and cash flow.

It’s evident that there is a great deal of valuable information that is contained in these two documents. Though they will often serve different purposes and be presented differently, they should still tell the same general story. One that hopefully excites and encourages other people to be interest in your business as well. Following a similar format makes it more understandable for your audience, whoever that may be.

Why to Rely on Financial Modeling to Strengthen Your Bank Business Plan

When it comes to the Bank Business Plan, financial modeling is discussed far less than financial projections. While financial projections are key to a strong plan, financial modeling will strengthen it even further. Financial projections can’t – or at least shouldn’t – exist without financial modeling, so it makes sense that they are just as, if not more, important. Giving them the attention they deserve will improve your financial projections and your bank business plan overall.

Defining Financial Modeling & It’s Role in Financial Projections

The first step to appreciating how and why to rely on financial modeling in the bank business plan is to make sure you understand financial modeling. Financial modeling is often confused with financial projections but, the two are quite different.

Financial projections are static, set figures that do not change. Financial modeling is an interactive, dynamic process that will allow you to determine or set many numbers, including financial projections. It is also used to look at potential outcomes of anything that involves numbers and finances.

Financial modeling is a working spreadsheet – most commonly created in Excel - that allows you to put in various different inputs to see how it will impact outputs. When it comes to financial projections in your bank business plan, financial modeling is the process of putting in potential revenues and expected expenses as well as other variables to arrive at the eventual financial projections.

The Importance of Financial Modeling in the Bank Business Plan

Clarifying Assumptions – You will explain the assumptions that go into your Financial Projections throughout your bank business plan. You will even note some of the assumptions next to or as a footnote with the financial projections. Some lenders will want further clarification and that is most easily addressed by showing them the formulas used in your financial modeling.

Proving Reasonability – When you are working on financial modeling to determine the financial projections for your bank business plan, you will likely examine a wide range of your numbers. In most cases, you will go with a sensible number somewhere in the middle. If the lender or loan officer questions how you arrived at your number, you can show you picked a likely number in the middle of all reasonable expectations.

Demonstrating Thoroughness – Financial modeling does more than help you arrive at the final numbers in your bank business plan, they also ensure you think through all possibilities. It is that sort of thorough consideration that is likely to impress loan officers and make them feel more confident that you will be able to successfully run your business. It may not be the deciding factor but, it can help sway them one way or another.

Conclusion

While financial projections tend to get all the glory in the Bank Business Plan, they would not exist without financial modeling. The process of arriving at the final number is just as – if not more – important than the final numbers themselves. When a potential lender or loan officer want to dig deeper into your financials, having clear and well-considered financial modeling setup will make the process easy and help strengthen your overall application.

What Professional Business Plan Writers Don’t Want You to Know About Market Research

Professional Business Plan Writers are some of the most helpful people you will ever interact with when it comes to preparing your business for launch and/or seeking funding. Yet they will often keep the best secrets to themselves. It is, after all, what keeps them in business. Some of their best kept secrets are related to market research.

Many primary research methods you can setup yourself – Market research can be broken down in a number of ways. One way is to look at the source of information. Professional business plan writers will explain that there is primary and secondary research.

Primary market research is getting information directly from the source. In most cases, this means your customers or prospective customers. It is typically collected through observation, surveys, in-depth interviews, or mystery shopping.

Professional business plan writers won’t tell you that you can’t do it. They’ll just offer to do it for you! In many instances, you may prefer this if you have the money. It can be difficult to setup correctly and, more importantly, it can be tricky to gather meaningful insights from the information that you collect. However, you absolutely can conduct primary Market Research on your own if you have the time, patience, and know-how.

Industry data (in most cases) is available to everyone – Secondary market research is information that has already been gathered and published by others. Its value is typically in how it is organized and that – in some cases – insights are available with it. What professional business plan writers won’t always share is that you can access most of this information yourself.

There is a catch, however. Many of the top secondary market research sites, such as IBIS World and Statista, come at a price. Often a steep price. Typically, it requires a hefty annual subscription. Though on some sites you can pay for individual reports. Without full access though, its hard to know if other reports may be more appropriate.

There are also free sources, such as governmental organization websites like U.S Bureau of Labor statistics. While the information found on these free sites is helpful, it often isn’t enough to give you a whole picture or answer all your market research questions.

It guides the entire business plan – Whether you conduct the market research or the professional business plan writers you hire do it, the extent to which it is used will be the same. Part of the reason professional Business Plan Writers like to do the market research – or have someone else in their firm do it – is because of how vital it is to the entire plan.

It will impact everything from labor costs and hiring plans to your marketing strategy. In nearly every section the information you learn from market research will guide that part of your plan in some way. This means that if you provide the market research, as long as it is accurate and thorough, you are already giving professional business plan writers a great deal of the information they need to write your entire plan.

6 Tips for Preparing Financial Projections for your Business Plan or Pitch Deck

Creating Financial Projections for a business plan or a pitch deck is an incredibly important task. Yet it is often something that founders have the least amount of experience with. Many choose to hire outside professionals – like financial modelers or professional business plan writers – but, if you choose to go it alone, here are some important tips to keep in mind.

1. Start with expenses – Coming up with financial projections for a business plan or subsequent pitch deck can seem like an overwhelming task sometimes, especially if you are not experienced in coming up with sales assumptions. It’s easier to break it down and start with your expenses. These tend to be easier to identify and predict than sales, especially if you’re a new business. Start with expenses and build from there.

2. Layout your history – If you have been in business for a year or more, layout your historical information before predicting your future financial projections for the business plan. You will often be able to identify trends and understand big drivers which will impact your future performance with this information in front of you.

3. Consider multiple scenarios – When creating the financial projections for your business plan or Pitch Deck there is a tendency to want to be optimistic. However, optimism – especially in a business landscape – can be unrealistic, or at least viewed as such. The best way to present realistic financial projections is to consider multiple scenarios and choose a number in the middle. When appropriate, you should even apply various calculation methods. That way when your numbers are questioned, which happens frequently, it’s easier to justify.

4. Hard coding assumptions in your spreadsheet - You are going to have many assumptions that will go into your numbers and as implied above, you are going to have people question them. You need to make sure you can clearly point to them in your models. This means in your spreadsheet they should be in their own cell or section and labeled appropriately. You should not, under any circumstances, incorporate your assumptions into a formula that will not be visible when presenting the document to others.

5. Go beyond the basics – It is a given that you will include the three basic financial statements in your financial projections in your Business Plan. These include the income statement, the balance sheet, and the statement of cash flow. This might be the norm but, consider your audience and what information is going to be most important to them in assessing your business. This is especially true in the pitch deck, which will likely also include investment ROI information.

6. Update when new information is available – You may go months or years between presenting the financial projections in your business plan or pitch deck to someone. You should make sure to keep these projections current. Even if it has only been weeks or months, if information has come to light that will materially change your assumptions, you should reflect that.

Crafting the Financial Projections for your business plan, or selecting the abbreviated version for the pitch deck, should not be taken lightly. They’re also not as complicated as they may initially seem if you have some guidance. Applying the tips above will be a good start and help the process go smoother for you.

From the Information Memorandum to the Bank Business Plan, Audience Matters

There are a number of common business documents from the bank business plan to the confidential Information Memorandum. Each have their own unique purpose and speak to a specific audience. Each also have their own structure and expected contents. In all these factors that set them apart, perhaps the most important is audience.

All Business Documents Are the Same

Obviously, all documents are not the same when you get into the details. Our two prime examples here, the bank business plan and the information memorandum, are two very different documents. Yet at the end of the day, they both aim to do the same thing: sell the business.

In the case of the bank business plan, its to sell it in the sense of convincing the bank to issue a loan. When it comes to the information memorandum, to sell is more literal. In either case, it ultimately comes down to the same thing. This is true of any business document including pitch decks, executive summaries, and beyond.

Knowing Your Business Documents

In order to understand the comparison, it is important to understand the two primary examples. A Bank Business Plan, as the name implies, is a business plan meant to be presented to a bank, usually to secure a loan. It will include all the elements of a traditional business plan, starting with an executive summary and ending with financial projections.

The purpose of the information memorandum is less obvious, though the structure is very similar. An information memorandum is a document used in mergers and acquisitions to prepare a business for sale. It is primarily a marketing document used to attract potential buyers. Although many of the sections are the same as a bank business plan, these documents will differ significantly.

Why the Audience Matters Most

The reason the bank business plan and the information memorandum will differ so drastically – despite having similar sections and a comparable layout - is because they are prepared for different audiences. The audience should be central to your thought process when preparing any business document. While the fundamental aspects of your document will not change, the way it is presented and what is emphasized will.

The best way to make this case is to use the financial section of these two documents as an example. Let’s say in some strange instance the same exact business is looking to possibly sell while also pursuing a bank loan to keep the business going in case they can’t sell. In both the bank Business Plan and the information memorandum, the historical financial information will be exactly the same. However, how it is presented will change.

The reason? Because in the bank business plan the audience is mainly concerned with whether or not you have cash flow management practices that will allow you to pay your loan on time. They are not overly concerned with how profitable you are or what your business’s worth may be in one, three, or five years.

It’s quite the opposite when it comes to the Information Memorandum. Most potential buyers will want to see the potential for a healthy return on investment. They will be far more interested in your overall revenue and profits and growth potential.

Conclusion

Regardless of what business document you are putting together, you should draft every section with your audience in mind. At the end of the day, most business documents are quite similar. What will really set them apart, is who they are intended to be shown to and what matters most to that audience.

The Key to Sound Financial Modeling for Your Business Plan? Market Research

 

When writing your business plan you will need to utilize Financial Modeling to create your financial projections. One of the most important aspects of putting together your financial modeling is having sound numbers to input. The best way to determine realistic numbers that should drive your financial modeling is through thorough market research. Market research will inform your financial modeling in a number of key ways.

Choosing Your Price – Through your market research you will identify the competitors in your market. Part of this competitor analysis will include looking at what they charge for products or services similar to yours. While there will be several variables that will factor into your pricing, competitor pricing should absolutely be one of them.

What you will charge for your products is the building block to all revenue assumptions that will go into your financial modeling. If you have to change your prices too much after opening, due to inadequate market research, this will quickly impact your future Financial Projections – often in the form of your budgets and forecasts.

Determining Demand – Market research covers a wide array of external factors that will influence your business. One thing that it will uncover is how much of a market – as a simple example this could mean how many people – exists that may be willing to purchase your product. In order to generate revenue projections, you not only need to know how much you’ll charge but, have an idea of how much you’ll be able to sell.

You will rarely have a definitive idea of demand, especially if your business is not running yet. Instead, your market research gives you a realistic range of demand you can expect. You can then test out numbers within the range through your financial modeling. Through viewing the results of your financial modeling scenarios, you will be able to finally arrive at the financial projections.

Estimating Expenses – The opposite side of determining your projections is knowing your expenses. Just as money comes in, it must go out. The question is how much money will need to go out? Yet again, market research helps you arrive at this answer. Through the process, you will learn things like the avg. cost per sq. foot for a commercial lease or average salaries for certain types of positions.

After your market research allows you to estimate your key and major expenses, those numbers will start to be applied in your financial modeling. Combined with the aspects already mentioned above, you are now able to start to fully piece together the basics of your key financial statements such as the Profit & Loss – also known income – statement.

This is only a sampling of how Market Research will play into your financial modeling. The connections are expansive and deep and should not be underestimated. It’s easy to think of market research as a completely separate part of the business planning process but, that’s simply not the case. Like all other aspects of a business plan – and strategic business planning in general – they all play an important part in a much larger whole. If you want to conduct bulletproof financial modeling, make sure you have current and thorough market research.

The 5 Most Common Mistakes Professional Business Plan Writers Experience

Professional business plan writers are passionate about business and helping established and budding entrepreneurs express their business idea. They don’t only write a Business Plan from scratch, they are often tasked with correcting or editing ones that already exist. Through this experience they have identified some of the most common mistakes.

1. Writing Without Audience in Mind – Every business plan should be written with the audience in mind but, far too often they are not. Professional business plan writers see plans all the time that underutilize certain points that would matter most to their audience while overemphasizing those that do not. While the fundamentals of your business plan shouldn’t change, what you choose to focus on and how you express it should, based on your audience.

2. Inconsistencies – Although the business plan has several separate sections, the information in these sections should reinforce and fit together. When inconsistencies occur, it calls the validity of the entire plan into question. What you say in one section needs to make sense in context of all the other sections. It’s quite possible your business plan will evolve as you go through the business planning process but, make sure as one aspect evolves, all the other parts change as necessary in conjunction.

3. Inadequate Market Research – Market research is arguably one of the most important aspects of the business plan. Yet professional Business Plan Writers routinely see people that don’t gather enough or use unreliable, untrusted, or unverifiable sources. Market research isn’t just something that needs completed to produce a business plan for an outside audience, it is one of the best ways to ensure your business can be a success.

4. Simple Mistakes – Typos and grammatical errors are not only distracting, they make your business plan seem unprofessional. There may be a number of reasons you choose not to hire professional business plan writers. Even if you choose to go it alone, you should hire a proofreader as a second set of eyes to review the final document for minor but impactful errors.

5. Overcomplicated Financials – In the background you will have likely considered every possible scenario for your business. This is prudent. However, when it comes to your business plan, professional business plan writers commonly see people making these too complicated or presenting too much information. You need to be able to present numbers that make sense with only minor explanation. You can always include additional backup and models or projections in an appendix but, not every single detail needs explained or every scenario explored in the financial section of the plan.

The best way to avoid making any of these mistakes is to hire Professional Business Plan Writers. Like any other type of professional, they know the true ins and outs of their field. While it can be tempting to do your business plan yourself – whether to save money or because you feel you have the required skills – a person who writes them professionally will have tremendous experience. That experience can be priceless when it comes to creating a more polished, compelling business plan that will appeal to whoever your audience may be.