Projections are important not for their actual numbers as much as for their presentation of drivers, relationships between growth and spending, key spending priorities, sales aspirations, and assumptions related to cash flow. They have to be solid and integrated, but accuracy is much more a matter of transparent assumptions than accurately predicting the future.
Working through your business plan, and starting with a one-page pitch, can help you test the viability of your business idea long before launching. As you work through everything from your branding and mission statement, to your opportunity and execution, the best thing you can do is get feedback and test different elements of your business.
By having a written business plan that you`re regularly reviewing, you can make confident decisions. You`ll have all the information necessary to know when you can hire new employees, launch a new product line or make a major purchase. At the same time, you can also plan ahead in case a decision doesn`t work out as expected, minimizing your potential risk.
The investment decision is about the content – the team, the market, the differentiators, the scalability, traction so far, validators, growth potential – not the presentation or formatting of the plan.
If you are writing a business plan to get a bank loan or because you`re asking angel investors or venture capitalists for funding, you must include the details of what you need in the executive summary.
The most common mistake by far is on profits. Startups that grow don`t produce profits. Investors make money on valuation increases, not profits. Real businesses rarely produce more than single-digit profits. Big profit projections are sophomoric. Take all those profits and dump them into marketing expenses and you`ll be better off.