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Anyone studying the projections should have the ability to plug unique numbers into the startup’s assumptions, normally listed clearing in the top left of a spreadsheet, and also see how different requirements may impact the company.
Excluding Scenario Analysis: The only thing we know is true about a startup’s projections is that they are incorrect.
It’s a red flag if a startup doesn’t consist of multiple potential situations in their own calculations.
Bankers and potential investors will look at this and immediately know that you don’t understand the industry of your business. In order to generate a $500,000 profit next year, how many ice-cream will you need to sell? Your assumptions need to be based on data, when possible.
For example, “there are 200,000 people in my city, 28% of people buy ice-cream from an ice-cream shop, I will need to capture 40% of the market in my city in order to generate a $500,000 profit next year.” Now you can outline a plan to demonstrate exactly how you intend to capture that 40% market share.
Some of these days may be decent, while others are probably not so good.
As a busy small business owner, we always have days where things just don’t go right.
They usually think ideas in their own favors, meaning they set profits too high or make a profit too early.
In the actual world, startups decide growth or profits, not both. And therefore, the shareholders win on growth, not profitability.
Investors ask you for: Creditors won’t just request data in your previous performances, also called historical data, in the financial section of your business plan they may also request for 5 year financial projection or 3 year financial projection for startups.
No Assumptions Listed: Startup financial projections include assumptions — assumptions around growth rates, pricing, expenses, and several different things affecting the condition of the company.