Business plan financial projections are designed to give your reader a feeling for how well your company can perform, typically over a period of either three or five years. Bankers considering whether to extend a line of credit or grant a loan to a new business will typically seek a three-year model (which is SBA standard), while angel investors and private investment firms/VCs look for a five-year one. Financial projections are always a blend of art and science. It is best to pin your assumptions to market conditions or competitive comparables, but there is always a leap of faith in the modeling process as well. Can you really gain 1% of the market? Are the industry figures from last year going to hold true for next year? You can't know for sure, but as long as you outline that speculation and note how you arrived at your figures, you've done all you can. Note the following things about your financial model:
• Keep an assumptions table in the plan and cite figures wherever possible
• If your business has revenues already, consider building a past performance table
• A past performance section generally shows your profit and loss statements and balance sheets from the past 2-3 years, in table and graph formats
• Make sure that break-even can occur within a reasonable timeframe—generally 8-16 months
• Double check that your cash flow has a positive balance throughout the life of the model
These aren't the sole considerations for strong financial projections but they should have you well on your way. The important point to note in the business plan itself is that the projections and the narrative of the plan should "speak" to each other as much as possible. Check that your market analysis paints a picture that would support your projections. If you know some average costs or income figures for your exact industry, describe them and then model from those—this will create an airtight model. If you want help with this process, you should call MasterPlans. In business since 2002, MasterPlans is the industry's leading business plan writing firm. We can get the plan and model put together for you in as little as two weeks. Call today: (877) 453-2011.
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