Business Plan
Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it is tough to predict your financial performance. Regardless, a short- and medium-term financial projection is a required part of your business plan if you want serious investors’ attention. Here are some guidelines for writing solid financial projections.
The Income Statement
The income statement is a standard measuring tool used to convey your projected revenues and expenses. A good financial projection also will include a projected balance sheet, which shows the breakdown of assets, liabilities and owner’s equity. In addition, it should include a cash flow projection, which reveals the actual movement of cash through your company in a given period.
Your financial projections should include estimates of how much money you plan to borrow and interest repayments on those loans. Additionally, be sure to follow the Generally Accepted Accounting Principles (GAAP), which is set by the Financial Accounting Standards Board.
Provide Short-Term & Medium-Term
Projections
It should be able to offer investors:
- A short-term projection of the first year, broken down by month
- A three-year projection, broken down by year
- A five-year projection. Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict; however, have it available in case an investor asks for it.
Make Your Assumptions Reasonable and Clear
As mentioned before, financial forecasting is as much art as it is science: It should have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow. It’s best to be realistic in your projections.
