Business Magazine

Startups Without Financial Projections Are Doomed

Posted on the 30 June 2011 by Martin Zwilling @StartupPro

lost_in_the_desertMost entrepreneurs tend to avoid this area of the business, and as a result are badly surprised by cost realities, and investor expectations. They seem to think that financial projections are simply invented numbers for investors, and not useful. In reality, it’s like jumping in your car for a long hard drive with no destination in mind. Chances are, you won’t enjoy success from the trip.

What is a business financial model, really? In most cases, it is merely a Microsoft Excel spread sheet loaded with your cost and revenue projections for your startup, starting now in time and extending at five years into the future. For more value, a few variables can be added, like product volume growth rate, and number of salesmen, for “what if” analyses.

Why? For you to make decisions and manage the business - because we are all mere mortals and can’t possibly keep all these numbers and calculations in our head – to decide whether and when the business is going to be profitable given rational projections of costs and income (these assumptions are referred to as your business model). Secondarily, it will be required by potential investors to validate how much money you need to get started, and how much return they can expect on their investment.

When? The financial model should be running even before you incorporate the business and build prototype products (would you start driving your car on a long trip before you knew where you were going?). If you can’t make that objective, then at least don’t approach potential investors until your model is working – investors have little tolerance for startups with no financial plan.

How? Start with a “sample” business model, available in generic form or customized for specific industries, from many sources on the Internet. Another alternative is to download from my website a free sample model that I built for a specific startup, with elements suggested by Angel investors and venture capitalists, ready to be customized to your business.

If you are not computer literate in Microsoft Excel, your first task is to find someone who has the time and expertise to convert your base set of costs and revenues into projection formulas, cash flow summaries, and a profit and loss statement.

Do your own, if you can, because you know the numbers. In fact, this is the easy part. More challenging is ‘defining’ the business model (assembling all the real variables of your projected business, pricing assumptions, staffing requirements, marketing costs, sales costs, and revenue flows).

This business model can then be used for many purposes, such as risk and profit assessment, projecting the values of assumptions that are made based on existing market conditions, calculating the margins that are needed to avoid adverse situations, and various forms of sensitivity analysis. These are necessary to estimate capital investment requirements, plan capital allocation, and measure financial performance.

Creating financial projections allows you to see areas of strength and weakness in your proposed business model, enabling you to make critical changes that will allow your business to run more successfully.

While people start businesses for many reasons, making money is usually important. Even a non-profit can’t afford to lose money. You won't know if you can meet these expectations until you build a financial model with reasonable financial projections.


You Might Also Like :

Back to Featured Articles on Logo Paperblog

These articles might interest you :

  • Keto-Cooking Tips for Busy Parents

    Are you interested in the ketogenic diet, but not sure how to cook? Then you'll enjoy this interview with Maria Emmerich. Having struggled with her weight in... Read more

    The 25 July 2017 by   Dietdoctor
    DIET & WEIGHT, HEALTH, HEALTHY LIVING, MEDICINE
  • The Production of Ignorance

    Production Ignorance

    What the media gets wrong about trans people, how misinformation is perpetuated, and what we can do about it. The first chapter of Trans Like Me: A Journey for... Read more

    The 25 July 2017 by   Cnlester
    LGBTQ, SEXUALITY
  • Competition: SilentNight Pillows

    Competition: SilentNight Pillows

    For everyone who loves a bit of night time comfort, SILENTNIGHT are giving away a set of their - PURE COTTON PILLOW PAIR. These lovely pillows have a 100% cotto... Read more

    The 25 July 2017 by   Evette Garside
    FAMILY
  • Listen: the Walls Group Releases New Single “my Life”

    Listen: Walls Group Releases Single Life”

    ChristianNews Stellar Award winning gospel group, The Walls Group which consist of four siblings ((Darrel Walls, Rhea Walls, Paco Walls, Ahjah Walls) has... Read more

    The 25 July 2017 by   Firstladyb
    SPIRITUALITY
  • But I Wasn't Even Drinking!!!

    Here is a straight from the headlines story that all parents should use to talk with their teens. Erin is a 17 year old senior in high school, honor roll studen... Read more

    The 25 July 2017 by   Joanigeltman
    FAMILY, PARENTING
  • “This Is the Absolute Best I Have Felt in Years”

    Is the two-week low-carb challenge a game changer? This is what life-long weight struggler Jasmin has to say after stumbling upon it: Hi Team, My name is... Read more

    The 25 July 2017 by   Dietdoctor
    DIET & WEIGHT, HEALTH, HEALTHY LIVING, MEDICINE
  • Khao San Road: A Perfect Place for Solo Travelers

    Khao Road: Perfect Place Solo Travelers

    Sometimes all we need is a place where we can breathe, to exhale all the problems and to inhale all the positivities of life. You’ve heard this before “try to g... Read more

    The 25 July 2017 by   Vinzsalvador23
    PHILOSOPHY, RELIGION, SPIRITUALITY

Magazines