Investor Business Plan Financial Projections
Investor business plan financial projections need to reflect the type of audience they are aimed at and the type of finance being sort. Investors have different requirements from lenders, and will look for different information in the figures.
Investors want to know they will get a return on their investment
Investors are often the most critical readers of a business plan financial projections since they have limited knowledge of the background to your business and generally invest in riskier situations.
Investors have a very different mindset than lenders, they are looking for a return on their investment and understand that there is risk involved. A seasoned investor will concentrate on whether your assumptions are reasonable and clear. They want to determine your ability to manage the business, not your ability to know the future.
When presenting financial projections the investor will want, among other things, to have answers to the following questions.
10 Questions
- How much money is needed?
- What is the money needed for?
- How much money could be lost?
- Is the forecast achievable?
- What is the business break even point?
- What is the net present value and internal rate of return of the investment?
- What is the return on investment and return on equity?
- How and when will they get their money back. Is there a clear exit strategy?
- What dividends will be paid?
- What is the risk involved and what could go wrong?
Investor business plan financial projections should be built to provide the answers to these questions. An investor ratio report included with the financial projections, is a useful tool to highlight significant information to the investor, such as any return on investment and return on equity.
Only a small percentage of investor business plan financial forecasts are successful, the majority are rejected after the initial quick scan. A well prepared forecast is the first step to improving your chances of a successful investment.
Our post on Financial Projections for a Bank Loan Proposal discusses the alternative set of requirements when preparing financial projections for a bank loan proposal.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.