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3 Tips For Creating Useful and Believable Business Plan Financial Projections - By: Henri, Posted on: 2008-04-24

The core of any usable business plan, and also any plan that is created in order to find financing or partners, are the financial projections. Then, most important to those projections are the assumptions used to create these projections.

TIP 1: BE CAREFUL ON ASSUMPTIONS

The core of any usable business plan, and also any plan that is created in order to find financing or partners, are the financial projections. Then, most important to those projections are the assumptions used to create these projections.

Are the assumptions that are the basis for your financial projections understandable? If you've written your business plan because you're looking for an investor or lender, don't assume that the reader can understand your business plan assumptions. By the time you are finished with your projections, you will be very familiar with the assumptions you used to construct your financial models. A first time reader of your business plan will not. Are you certain that you made it easy to follow your logic? It's better to explain a little more than you have to, than not explain enough.

The best projections for your business plan are well-rounded ones. Telling the investor that his projected return is 52.444% is not any more impressive than saying you project a return of roughly 50%. Many entrepreneurs come down with a bad case of “spurious exactitude” when doing projections. This seems to be a highly contagious disease.

TIP 2: BE CAREFUL WITH “WHIZ BANG” SCENARIOS

Many people think that the more complex their financial models are, and the more "what if" scenarios they concoct, the higher their chances of being funded. A variation of this is the business plan that has projections seemingly for decades. Fifty pages of imaginary numbers are not better than five. Particularly in this age when technology is evolving so quickly, it is impossible to accurately forecast 3 years out, let alone 7.

Concentrate instead on answering these questions: How fast are we going to use the investor's money, when does the company's cash flow turn positive, and what margins can this company earn? It is definitely better to KISS (Keep It Simple, Sam) than to try and wow your business plan reader with outlandish scenarios that they will know instantly are not realilstic.

TIP 3: THE HARD TRUTH ABOUT BUSINESS PLAN SOFTWARE

There are a number of business plan software packages that sell thousands and thousands of copies. Software can be very helpful in developing financial models and preparing projections. But they are not going to write the narrative sections of the business plan for you, so you may be disappointed in the results you get from using a computer program in building your business plan. How can the programmers of "Super Duper Hot Business Plan Package" or whatever the software is called, possibly know how your plan should look since they have never met you and do not know anything about your company? Software can't think for you.

Better is to learn what you need in your plan, then simply write the plan using the correct information. You can go to Small Business Tool Kit (www.toolkit.com) for an excellent outline. BTW – this site is a free Wiki site to all who use it, and they are not selling anything! Amazing, huh?

Incidentally, for the average cost of these software packages, you can take a family of four out to dinner, and at least two of them can order dessert. Why not do that instead of wasting you money on one of these software packages that will not really make things any less complicated for you anyway?!

The overal idea here is: Make sure your assumptions are simple and easy to accept, then your financial projections and the example scenarios you create will also impress and inform your business plan readers.

Article Source: http://articlelover.com

Information about the Author: Henri Schauffler, The CEO Coach, has dedicated the last 20 years to helping small businesses like yours to Outmanage, Outhire, Outsell and Outprofit All the Competition. For a FREE business assessment and tune up to see exactly how you are doing in all Eight Essential Areas for Business Success, go to www.QuickBizQuiz.com.

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