Business Plan Financial Projections – Common Mistakes Explained

Mistake #1 – Grandiose Projections

Using assumptions that make all the lines point up in your business plan financials will arouse suspicion. In business the term “hocky stick” projections is used to describe the shape of the sales chart in a growing company.  While it may be tempting to make the pictures look appealing to your audience it is also important that you use supportable assumptions that will stand up to questioning. Very few companies are able to deliver projections that rocket from a standing start so be aware that investors and financiers will ask  probing questions around the rationale of the projections.

Mistake #2 – Align business strategy with financial assumptions

It may sound obvious, but this is a more common mistake than you may think.It is vitally important that you link your business analysis to the business plan financial forecasts. Assertions made in the sales & marketing strategy, the competitor analysis and in the operational strategy of your business plan must support what is in the financial projections in each year. Anything that doesn’t intuitively line up at first glance will provoke further investigation and questioning. In some cases it will lead to the plan being rejected there and then. Your business plan must have credibility and fundamental errors will destroy your credibility instantly.

Mistake #3 – No scenario analysis

A good business plan financial forecast will include at least a basic scenario analysis. This means providing some insight into how the business will perform under less than optimal conditions. Obviously when you formulate your plan it will be based on achievable assumptions such as gaining new business or acquiring new funding to expand. What happens to your business plan financial projections if all the stars don’t align? Even a basic scenario analysis will show that you have considered the down side as well as the upside but perhaps more importantly in the eyes of the investor, that you have planned for it.

Be Aware Of Your Audience

There is fine line between being realistic and optimistic when conveying the financial future of your business. As the entrepreneur you must think positively and strive for an optimal outcome.

When approaching investors and financiers it is imperative that you also show a level of prudence which will demonstrate your financial acumen and gain respect from your audience.

If your business plan financial forecasts show the best case but also highlight a plan for the worst case you are much more likely to get your audience to view you with respect rather than derision. This will aid in the process of delivering your plan effectively.