Financial Projections For A Consulting Business Plan

Many businesses focus on revenue to attract investors. But revenue won’t matter if there's no clear path to profit. I helped a business organize their finances for some potential investors, and redirected them to build a story around growth and showcasing a path to higher profits. I get it, traction is important, but without a clear path to profit revenue can be a false market if it's not enough for the product/service to become a viable profitable business. The Balance Sheet and P/L statement can easily verify future growth. Here's how I built a profit plan that helped obtain the financial investment they needed.  → 2 statements with notes and talking points. ↳ Profit and Loss (P/L) statement: 1. Showing trends in revenue growth, gross margin, and net profit over time indicates the company's trajectory. 2. Investors often look for specific metrics such as (CAC), (LTV), and operating margins. Providing these metrics alongside P/L statements shows a solid understanding of the business model and profitability potential. 3.Use historical P/L data to create realistic financial projections. Clearly outline assumptions for revenue growth, cost management, and market conditions. 4. Compare P/L with industry benchmarks or competitors. This helps investors see how the you stacks up and your potential for capturing market share. 5. Identify specific factors driving growth, such as new products, market expansion, or strategic partnerships. Linking these drivers to expected changes in the P/L can provide a compelling narrative. 6. Highlight any operational efficiencies or cost-saving measures that have been implemented or planned. A well-managed cost structure leads to improved margins. 7. Clearly outline how investments will be used to fuel growth, such as scaling operations or marketing. Linking capital needs to specific P/L outcomes. 8. Address potential risks to growth, backed by P/L analysis, and explain how the company plans to mitigate these risks. A planned approach to risk reassures investors. ↳ Balance Sheet: 1. Highlight valuable assets, such as proprietary technology, intellectual property, or a solid inventory. 2. Showing manageable levels of debt and a clear strategy for repayment instills confidence in investors regarding the startup's financial prudence. 3. A strong equity position indicates investor confidence and suggests that the startup is on a positive trajectory. 4. Emphasizing cash reserves or effective cash flow management reassures investors of your ability to sustain operations in downturns. 5. Presenting trends in key metrics, such as increasing revenues and improving margins, alongside the balance sheet provides a narrative of growth. 6. Presenting how current assets are being invested shows commitment to future growth. 7. Benchmarking by comparing key metrics to industry standards help position a business favorably within its market segment. Please share your thoughts! #Business #Finance

If you’re planning to launch a new business or income stream, you won’t want to miss this step: Develop simple financial projections. This doesn’t need to be an investment banker-level spreadsheet. It can be more of a back of the napkin style calculation when you’re just getting started. But you should consider… - How much would someone pay for what you offer? - What number of customers could you reasonably serve? - What revenues could you conservatively expect? - How much does it cost to acquire a customer, if anything? - What will your regular operating costs be? - What’s your upfront investment? - Where is this money coming from? - If you project you’ll be at a loss for a number of months, how long can you afford to fund your losses? - What levers do you have to increase revenue over time? - How will costs increase over time? These are areas that getting clarity on earlier than later, and having a plan for them, will empower you. You’ll be able to use the answers to make decisions like: - How much money you need to save to get started - How long to stay in a full-time role while you build a new income stream - How much money to raise if that’s your path, and - How much and when you can afford to pay yourself out of your business. If you don’t know the answers, go out and do research, ask people that have built similar businesses. Your assumptions will probably be off. But building your projections and being able to update them as real data comes in sets you up to have a much better understanding of your business model and to make informed decisions based on that information. What would you add to this list of finance questions for someone just starting out on their entrepreneurial journey?

Best Practices in Developing Projections Models to Support Strategic Planning Strategic thinking, planning and evaluating strategic alternatives must be supported by a strong long-term projections (LTP) model. Best practices include the following: A comprehensive model is required to effectively evaluate financial performance, financing requirements and value creation. This requires P&L, Balance Sheet and Cash Flow statements, Key Performance Metrics (e.g. ROIC) and Valuation Analysis. The potential for value creation should be a primary factor in evaluating strategic plans.   Incorporate and Review Historical Performance. In developing a model for use in LTPs, it is important to incorporate history (3-4 years). The inclusion of history helps to identify key drivers, trends and interrelationships that are critical to projecting future performance. Second, it provides confidence in the relationship between these drivers and the actual financial results posted in prior years represented in the LTP model. Identify and Evaluate Key Assumptions and Business Drivers. Critical assumptions and business drivers that will affect future performance must be explicitly identified. Too often, these are buried in formulas in a model that reduces the ability to review, test and modify. Key assumptions will vary for each individual business. Market and competitive forces, product life cycles and introduction plans are generally important. Key costs drivers must be identified and incorporated into LTP models. Critical assumptions must be documented, reviewed and tested. Identify Strategic Issues. Key Strategic issues must be considered in the development of LTPs. These may include changes in the market, competitive threats, addressing weaknesses and human capital gaps, strategic investments and many other issues that will impact future financial performance. Robust and Flexible to support evaluation of Strategic Alternatives and Scenarios. The model should be flexible to facilitate changes in assumptions, scenario analysis and evaluation of strategic alternatives. High Impact Output (Presentation) Summary. Key performance measures and proforma valuation analysis should be auto generated within the model to facilitate summarization and presentation and enable changes and scenario analysis. Adapted from “Financial Management: Partner in Driving Performance and Value,” chapter 21, Long-Term Projections.