Many investors jump right to the financial part of the business plan. It is crucial that your business plan author’s projections and assumptions in this part be practical and realistic. Business Plans which demonstrate penetration, revenues and operating margin per worker, figures that are unsatisfactorily reasoned, logically inconsistent or unrealistic, significantly destroy the credibility of the whole business plan. Whereas, decent and rational financial projections and assumptions convey credibility and maturity.
As an example, if the business is classified under networking infrastructure company and the business plan forecasts 80% operating margins, investors will call out a warning. Such is because the investors can easily access operating margins of publicly traded networking infrastructure company and realize that none of those companies have too high an operating margin.
The assumptions must be based on true and actual outcomes from your business or other companies. As the instance above indicates, it is rather simple to check a public company’s operating margins and utilize these margins to approximately project your own. The business plan must likewise base its revenue growth on other companies. Many companies find this improbable, because they think they have a break-through merchandise in the marketplace, and that no other firm is at par. In this circumstance, the company bases its revenue growth on businesses in different industries which have experienced break-through products. Should you expect your business to grow much faster than they did (perhaps due to new technologies which those businesses were not able to utilize), you may incorporate assumptions that are more aggressive and competitive in the business plan so long as you discuss them in the text of the plan.
The financials can enhance or significantly damage the business plan’s opportunities in raising capital. By doing the study to come up with realistic assumptions, according to real and actual outcomes of your business or other firms, the financials can fortify your business’s odds of winning investors. The more practical and realistic financials will provide a much better path towards the success of your business.
