Business Plan Assumptions

Financial Projections Business Plan Assumptions

All financial projections are based on business plan assumptions. Listed below is a selection of the most important assumptions which need to be considered and decided upon when using the Financial Projections Template to produce the financials section of your business plan.

This is not an exhaustive list of business plan assumptions, the assumptions used in your financial projection will inevitably depend on the type of business, and the economic climate in which it is being operated.

Business Plan Assumptions List

1. Inflation rates and foreign exchange rates

   – effect on sale and purchases
   – effect on assets and liabilities

2. Sales and marketing

   – level and timing of sales demand
   – exporting considerations
   – pricing strategy, high or low
   – trade and early payment discounts
   – advertising and promotion costs
   – warranty costs

3. Cash collection

   – credit taken by customers
   – bad debt experience

4. Distribution

   – commissions
   – freight costs

5. Research and development

   – time taken to develop product
   – cost incurred (labor and materials)
   – debugging of product
   – receipt of government or other approval

6. Production

   – availability of components and quantity required
   – availability of labor and relevant skill levels
   – wage, salary and benefit contributions
   – returns due to product failure
   – repair costs
   – yield rate
   – other costs
   – predetermined factory overhead rates

7. Fixed assets

   – requirements for capital expenditure
   – costs
   – method of financing the purchases

8. Purchasing

   – inventory and work in process levels
   – credit taken from suppliers
   – availability of trade and cash settlement discounts

9. Gross margin

   – gross margin percentage achievable

10. Taxation

    – income tax rates
    – sales tax rates

11. Lead times

    – from development to cash receipts and all stages in between

12. Operating expenses

    – level of general and administration expenses
    – staffing levels
    – property costs

13. Depreciation

    – method– depreciation rates

14. Grants

    – timing
    – accounting treatment

15. Funding

    – type, loans, overdrafts
    – type, equity, venture capital
    – availability and timing
    – interest rates
    – terms
    – repayment terms

You need to prepare a business plan assumptions sheet as part of your plan, however, the important point to remember is that the assumptions should be kept simple and to a minimum, to avoid over complicating the financial projection. Remember this is planning not accounting. The calculation of key assumptions is further discussed in our financial projection assumptions post.