Best Practices for Financial Projections in a Business Plan or Information Memorandum

On the surface, a business plan and an Information Memorandum (CIM) may seem the same. They both describe a business and outline its goals and objectives. But a key difference between the two is in their use:

1. Business plans are made in order to plan a company’s path to success, to keep track of it, or to serve as a pitch to investors.

2. Information memorandums, or offering memorandums, are often written with a specific intent or event in mind, namely for the purpose of a merger or a business sale.

Regarding their structure, both of them share the same elements, and one of these is a financial projection or forecast. It is an important document that includes predictions for future revenue and expenses. There are a few crucial practices to keep in mind when writing Financial Projections Business Plan or information memorandum.

They should be realistic

Any good financial forecast should be honest and accurate. They predict potential success, but also your company’s shortcomings and problems. This should most definitely be included in the financial projection in your business plan, or Information Memorandum. So, do not understate, nor overstate your numbers. Many make a mistake of viewing CIMs as a marketing document, but that could lead to a disappointed investor and potential lawsuit or a fine.

Conduct current market research (again)

Solid market research is a good basis for financial forecasts. And even if you are in the industry for a while, it is always advised to check your numbers before making new projections. It is a well known fact that the market is fast changing, and if you want to be on top of the game you should stay alert and adjust your financial projections for your business plan according to the new data found in your market analysis. Speaking of which…

Make changes, reevaluate regularly

Financial forecasts can be short term (1 year) or long term (3-5 years). Usually startups have monthly or quarterly projections. But even if you have long term projections, reevaluate on a regular basis to make sure your company is on the right track.

These documents are all about planning, predicting problems and keeping your company's financial goals in mind. But plans can sometimes change due to an unforeseen event. Changing and evolving with the market is necessary to stay afloat. Financial projections for your business plan or information memorandum should reflect that.

Support your numbers

This may be stating the obvious, but make sure your numbers match your claims, and your data supports your numbers. Part of Financial Projections Business Plan or information memorandum is making assumptions. Therefore, for a compelling projection it is important to show where the numbers came from. So gather your numbers before making assumptions, whether they came from previous sales, market analysis, client data, bank statements and others.

Like mentioned before, do not treat your projections and CIMs as a marketing document. Be realistic and do not embellish, even when the numbers do not work in your favour. It may seem counter intuitive, but show your business's weakness too. This way your projections will seem credible and well planned.