Supporting project revenue growth
How might you support your projected revenue growth when asked by a potential investor?
What evidence could you offer?
Investors are an imperative part of the entrepreneurial process. Without investors, there is not an outside source of capital for businesses to jump into the market. In certain scenarios, the investor may be the only way a new product and service will ever make it. If one was to start a business the information provided to the investor would have to be well thought out including financial planning data, forecasts, business plan and so forth. A good way to see how to present information to an investor is by looking at what not to do first.
Entrepreneurs are not ignorant people. The ability to start an idea and form it into a tangible way to make money requires dedication, innovation, and for sight. Where would someone smart like an entrepreneur fall short? Ego may be one of the downsides to the projection of estimated revenue and profit potential of an idea. The investors want to see detailed forecast of short and long-term profit goals and costs associated with the business venture. According to (Schreter, 2011), “the reason why projections tend to be so far off the mark is entrepreneurs try to guess what will impress investors.” Indeed, there is an important aspect of making a statement to the investors but not at the sake of proper financial data.
One way to ensure investors are receiving the right information is to take in account all projected cost right down to the staples and paperclips. Pennies add up and the investors need to know where the money will be going at start-up. The most reassuring thing to an investor is not the great idea but the understanding of how far the money will go and when the business creates a profit. Cash flow and balance sheets work great in showing detail spending projections. Another place to focus on is the external and internal factors that can generate cost and revenue. Providing a summary for each cost and profit will provide a better understanding for the investors and where their money is heading.
Regardless of how big or small the business venture is there needs to be an accurate financial picture. The support of the investors is built around honesty, integrity, and monetary accuracy. The big difference between being backed by an investor or turned away is the prudence in financial planning by the entrepreneur.
When seeking investors for a project or a business, it is important to be able to support the projected revenue growth. Having a firm understanding of financial statements and a strong business plan will benefit you here and also throughout a business career. It tends to be more difficult during a business start-up, because you do not have the historical data and the experience to pull from. Financial projections and knowing how to prepare them are the key to obtaining investors.
A business plan is always the first and most important part of a business. It is the first product of an entrepreneur and is needed to even get an idea off the ground. This is what investors will use to judge a business and decide if it is worthy. They will evaluate the idea, the market, and the team you have put together to make this business a reality. Without a strong business plan, there will be no investors.
Your financial projections should include analysis of everything (total market size, average sales price, average profit margins, growth rate) in your industry. You have to account for competition, and how much penetration into the actual market you can initially make, and you adjust accordingly for the future. Starting at the bottom with a simple business outline and building on that with numbers and realistic cost projections will allow you to evaluate the amount of income you need to sustain the business, and the amount of potential profit.
One of the most appealing factors to an investor will be their return on investment. This is how fast they can see their money returned as a product of a successful business. A high rate of return will be more appealing to an investor. Everyone is essentially in business to make money, and the faster and easier it is to make, the more likely an investor is to bite.