Slide 10 in your business plan pitch presentation covers your financial projections. There’s a lot to cover here, so I’ll break this into a few posts.
Financial projections for startups involve a bit of irony. On one hand, the numbers are almost always wrong, because of the difficulty of predicting so many variables with little or no base of historical performance. On the other hand, the numbers are critical. They tell you how much capital you’ll need, when you’ll need it, where it will get you, and they help predict what the business will be worth if all goes well. They also reflect many of the critical assumptions you’ve made throughout your plan, tying them all together to form a quantitative roadmap.
Before you start crunching numbers, it’s important to think about what your audience will really care about. You will have to build a reasonably sophisticated financial model in Excel. But in early pitches, you won’t be sharing that model — only snapshots of it. Those snapshots should help investors determine three things:
1. What’s the big picture? The first thing you’ll want to show is what the numbers say, from 35,000 feet. How much cash will you burn through before you break even? When will you hit that break-even point? What volume of sales do you need to reach to break even? How do revenues and expenses grow relative to each other? How big will the company get, and how quickly will it get there? These numbers are just the beginning, of course, but they’ll let your audience know very quickly whether you are in the ballpark given their investment criteria. If your numbers say you need to raise $3 million on day 1, angel investors will probably show you the door because they don’t invest that much. If your company shows revenue of only $3 million by the end of year 3, venture capitalists will probably pass because they need to focus on opportunities that can scale quickly. You can show these big picture numbers with a simple chart or graph that shows annual revenue and profit/loss for three to five years.