Last updated on Jul 3, 2024
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Know your audience
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Choose the right format
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Make realistic assumptions
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Highlight your milestones
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Prepare for questions
How do you present your financial projections in a clear and compelling way? Investors want to see that you have a realistic and achievable plan for your business, and that you can communicate it effectively. In this article, you will learn how to prepare, structure, and deliver your financial projections in the context of business planning.
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- Ken Reddy CEO - Reddy2Grow
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1 Know your audience
Before you start working on your financial projections, you need to understand who you are presenting to and what they are looking for. Different types of investors have different expectations, goals, and criteria for evaluating your business. For example, angel investors may be more interested in your vision and potential, while venture capitalists may focus more on your traction and scalability. Research your target investors and tailor your projections to their needs and preferences.
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- Ken Reddy CEO - Reddy2Grow
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I agree that you should know your audience but before that your company should have a defined plan on their path to revenue without the need for funding. Investors want to see that you understand that it’s a business not just a handout.
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Ensure that you not only know your audience but be able to read their reactions and adapt as appropriate. The audience response internally and externally is a great litmus test.
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- Anthony Franco I launch, scale, and sell businesses (and help other founders do the same)
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Knowing your audience is overrated; understanding their hidden agendas is key.Yes, it’s crucial to tailor your presentation to your audience, but what really matters is understanding their unspoken interests. As Peter Drucker said, "The most important thing in communication is hearing what isn't said."By deciphering the underlying motivations of your investors, you can present your financial projections in a way that addresses their true concerns and ambitions.
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2 Choose the right format
Presenting financial projections is not a one-size-fits-all process, but there are some common elements that should be included. These include an income statement, which displays revenue, expenses, and profit or loss for a given period; a cash flow statement, which shows the amount of cash generated and spent from operations, investing, and financing activities; a balance sheet, which outlines assets, liabilities, and equity at a certain point in time; and key metrics, which measure business performance such as customer acquisition cost, lifetime value, churn rate, gross margin, and break-even point. Depending on the business model, other projections such as sales forecast, unit economics, or market share may also be necessary. To ensure clarity, conciseness, and consistency, the format of the projections should be supplemented with charts, graphs, and tables.
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- Ken Reddy CEO - Reddy2Grow
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In my experience your CFO and exec team should know what KPI’s drive the business. Financial projections are a form of storytelling that you perfect based on the business drivers, those numbers become the levers that allow you to move faster and gain support for your future roadmap.
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3 Make realistic assumptions
Your financial projections are based on assumptions that you make about your business, your market, and your industry. These assumptions should be realistic, reasonable, and supported by evidence. Avoid making overly optimistic or pessimistic assumptions that may undermine your credibility or raise doubts about your feasibility. Explain the logic and sources behind your assumptions, and show how they affect your projections. For example, you can use industry benchmarks, customer surveys, or historical data to justify your assumptions.
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- Tim Duffy Consulting Technical Director at Oracle
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Multiple versions of financial projections are a tool that can prepare managements for discreet occurrences - cash shortage, Inventory shortage, Receivables growth.
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4 Highlight your milestones
Your financial projections should not only show your current and future numbers, but also your past and present achievements. Highlight your milestones that demonstrate your progress, traction, and validation, such as product launch, customer acquisition, revenue growth, or funding. These milestones can help you build trust and confidence with your investors, and show them how you plan to use their money to reach your next goals. Use a timeline or a roadmap to showcase your milestones and link them to your projections.
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Highlight your milestones but also have transitional and adjacent milestone that illustrate your pathway is agile and flexible to respond to external changes.
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- Anthony Franco I launch, scale, and sell businesses (and help other founders do the same)
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Milestones are not just checkboxes; they are pivotal points that redefine your business trajectory.While showcasing milestones is important, it's equally crucial to illustrate the strategic shifts and pivots they represent. Steve Jobs once said, "You can't connect the dots looking forward; you can only connect them looking backwards."Highlighting the learning and growth from each milestone can instill greater confidence in your investors.
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5 Prepare for questions
No matter how well you have prepared and presented your financial projections, you should be prepared to face some questions from your investors. They may want to delve deeper into your numbers, challenge your assumptions, or test your scenarios. It is essential to be ready to answer their questions with clarity, honesty, and confidence, and to provide additional information or data if needed. Additionally, it is wise to anticipate some common questions that investors may ask, such as: how did you come to your revenue and expense projections? What are the main drivers and risks of your cash flow? How do you compare to your competitors and peers in terms of key metrics? What are your assumptions for your market size and growth rate? How sensitive are your projections to changes in your assumptions or external factors? Being prepared for these questions will help you to demonstrate your knowledge and confidence in your financial projections.
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The best way to prepare for questions and answer it like a rockstar is to know your materials inside and out. If you know the key numbers/findings, drivers, data that is important for your audience and for decision-makers, and are valuable, you can be about 75% prepared for common questions. The rest will come from experience and tough detailed questions that get into the weeds. Be calm and relax. Your audience are people too and they should be able to relate that presentations are not easy and you aren't a robot. Your best response to questions you don't know answers to is: "Let me look into it and get back to you". Good luck!
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In my consulting days we would joke that forecasts are either wrong or lucky :) Yet they are a useful tool if used right to align organizations around what matters most and ensure teams track and manage the riskiest assumptions (aka best guesses). Having a solid sensitivity analysis done for the key assumptions that drive the projections will help you focus the questions on how your strategy would change vs. a debate on what the assumption should be in the first place (nobody has a crystal ball).
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