Financial projections are an integral part of a startup business plan. During the Seed Funding Stage ($500K to $1.5 Million) financial projections predicting the company’s future revenue, expenses and profits are presented to attract professional investors.
First-time founders often make these common errors in generating the financial projections.
1. Financial projections made with top down method; assuming company will obtain certain percentage of available market size producing high revenue numbers.
2. High operating profits due to lack of understanding of expenses needed to operate business
3. Projecting unrealistic high revenue and high profit margins thinking that the overly optimistic numbers will attract Professional investors to invest in the startup. Often it has the opposite effect, professional investors have good understanding of business and will not believe the very high revenue and profit levels are achievable and therefore will not Invest in the startup.
1. Financial projections should be made using bottoms up approach.
2. Financial data should be calculated with projected sales of products incorporating quantities and prices.
3. Detail operating expenses should be included; do not omitted required expenses
4. Financial numbers should be projected that have reasonable chance of attainable.