The Third Step:
Preparing the Financials
Purpose of Financial Forecast
Developing a detailed set of financial forecasts demonstrates to the investor that the entrepreneur has thought out the financial implications of the company's grown plans. Investors use these forecasts to determine if (a) the company offers enough growth potential to deliver the type of return on investment that the investor is seeking, and (b) the projections are realistic enough to give the company a reasonable chance of attaining them.
Content of Financial Forecasts
Investors expect to see a full set of cohesive financial statements. It is customary to show monthly statements until the break even point or profitability is reached. Thereafter, quarterly statements should be prepared for two years, followed by yearly data for the remaining time frame.
Assumptions to Use in Forecasts
- Sales
- Cost of Sales
- Product Development
- Other Expenses
- Balance Sheet
- Cash Flows
Beyond the Three Steps
Alternate Financing Sources
- Friends & Relatives
Many companies have financed their development stages through the help of friends and relatives.
- Debt Instruments
Business purchase/expansion monies can be attained through a variety of debt instruments. Consider equity options, flexible payment terms and convertible debt.
- Joint Ventures
Any company can benefit from having a strong corporate partner.
Tips to Getting Noticed
- Spend time writing a succinct and persuasive executive summary, BUT write the body of the business plan FIRST.
- Create a professional, graphically pleasing document. Make sure it is indexed for easy reference. Number copies, sequentially, so that investors will know that only a few copies are being distributed. Include a cover letter addressed to a specific contact and follow up with a phone call.
- Use references or introductions from sources respected by venture capitalists. Have your plan referred through an accountant or attorney with a strong venture capital practice.
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