A Business Plan's Most Important Asset: The Financial Model
At Bond/Wooley, we’ve worked with hundreds of clients to develop thorough business plans that spell out each entrepreneur’s vision and unique strategy. But often, clients who already have a business plan that they’ve shopped around come to us with a common question: why aren’t investors biting? More often than not, the problem has to do with their financial model – the set of projections that are supposed to outline the company’s market, execution and forecasted profits in numeric terms that investors can readily understand.
If the entrepreneur’s financial model isn’t bullet-proof, investors are going to ask: Where do these numbers come from? How much will it cost to acquire each customer when launch, and how much will it cost three years down the line? How do you know that you can pull off your strategy for $2 million in capital? And all too often, the entrepreneur won’t have a set of thorough financials that can provide the right answers.
A business plan might be eloquent and convincing, but it’s only as good as the projections, research and assumptions that go into it. And those data should be worked into the financial model’s spreadsheet and drive the calculations that result in a realistic set of pro formas. And then, the key drivers and results should be clearly stated in the written plan.
Finally, even the best assumptions could be challenged by potential investors – which is why the best financial models are built to be flexible: change one assumption and immediately see how that change impacts your bottom line (if not your strategy).
So, if you have a great business plan but investors just aren’t signing on the dotted line, maybe it’s time to take a closer look at your numbers!