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.
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.
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.
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.
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.
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.
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.
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