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Writing a Business Plan
While it may be tempting to put off, creating a business plan is an essential part of starting your own business. Plans and proposals should be put in a clear format making it easy for potential investors to understand. Because every company has a different goal and product or service to offer, there are business plan templates readily available to help you get on the right track. Many of these templates can be adapted for any company. In general, a business plan writing guide will recommend that the following sections be incorporated into your plan.
The executive summary is the first section that business plans open with, but is often the last section to actually be written as it’s the most difficult to write. The executive summary is a summary of the overall plan that highlights the key points and gives the reader an idea of what lies ahead in the document. It should include areas such as the business opportunity, target market, marketing and sales strategy, competition, the summary of the financial plan, staff members and a summary of how the plan will be implemented. This section needs to be extremely clear, concise and engaging as you don’t want the reader to push your hard work aside.
The company description follows the executive summary and should cover all the details about the company itself. For example, if you are writing a business plan for an internet café, you would want to include the name of the company, where the café would be located, who the main team members involved are and why, how large the company is, who the target market for the internet cafe is, what type of business structure the café is, such as LLC, sole proprietorship, partnership, or corporation, what the internet café business mission and vision statements are, and what the business’s short-term objectives are.
Services and Products
This is the exciting part of the plan where you get to explain what new and improved services or products you are offering. On top of describing the product or service itself, include in the plan what is currently in the market in this area, what problems there are in this area and how your product is the solution. For example, in a business plan for a food truck, perhaps there are numerous other food trucks in the area, but they are all fast –food style and unhealthy so, you want to introduce fast food that serves only organic and fresh ingredients every day. This is where you can also list your price points and future products or services you anticipate.
The market analysis section will take time to write and research as a lot of effort and research need to go into it. Here is where you have the opportunity to describe what trends are showing up, what the growth rate in this sector looks like, what the current size of this industry is and who your target audience is. A cleaning business plan, for example, may include how this sector has been growing by 10% every year due to an increase in large businesses being built in the city.
Organization and Management
Marketing and sales are the part of the business plan where you explain how you will attract and retain clients. How are you reaching your target customers and what incentives do you offer that will keep them coming back? For a dry cleaner business plan, perhaps if they refer customers, they will get 10% off their next visit. In addition, you may want to explain what needs to be done in order for the business to be profitable. This is a great way of showing that you are conscious about what clear steps need to be taken to make a business successful.
Financial Projections & Appendix
The financial business plan section can be a tricky one to write as it is based on projections. Usually what is included is the short-term projection, which is a year broken down by month and should include start-up permits, equipment, and licenses that are required. This is followed by a three-year projection broken down by year and many often write a five-year projection, but this does not need to be included in the business plan.
The appendix is the last section and contains all the supporting documents and/or required material. This often includes resumes of those involved in the company, letters of reference, product pictures and credit histories. Keep in mind that your business plan is always in development and should be adjusted regularly as your business grows and changes.
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What Are the Key Assumptions of a Business Plan?
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Entrepreneurs often make two basic assumptions about a new business: that they have a product consumers will want and that the business owner can make and sell the product profitably. An investor or partner will want to see that you’ve done you’re homework and can support more key assumptions than those two, with research and data.
Product or Service Need
One of the first and most important assumptions to address in a business plan is that there is a demonstrated need for your product or service in the marketplace. You can do this with a competition analysis, showing that others are making this product or offering this service and selling it profitably. If you believe you have a new idea no one has tried yet, demonstrate that there’s a need or desire for the benefit you offer, which can include showing how other companies currently address this consumer need, but not as well as your new idea will.
Sufficient Customer Base
Another key assumption is that enough consumers want your product or service that you can generate adequate sales to make a profit for the long run. You will need to demonstrate that there are many more people in your target market than you need, because all of them won’t buy, and many will buy from competitors.
There is no specific formula businesses use to calculate this number, but your excess potential customer base should be more than just a percentage of your sales need. For example, if you need 100 people to buy from you each day, don’t plan on surviving in an area with 120 or 130 potential customers. Plan on needing an exponential number, which might be five to 10 times the number of customers you need.
Research to Demonstrate Profitability
Every entrepreneur assumes he will be profitable, but that assumption must be borne out by market research, budgeting and sales projections. Profitability does not depend only on sales – it centers around your cost to make and sell your product.
Once you have calculated your manufacturing and overhead costs, review the various price levels at which you might sell your product to determine if you can pay off your start-up costs, then start making a profit. You can choose a pricing strategy that generates high sales volumes by selling at a low price or by trying to maximize profit margins with a higher price.
Management Expertise and Experience
A product doesn’t make itself, and a company doesn’t run itself. One of the key assumptions of a business plan is that the principals can run a business profitably. The creator of a widget might make the best widget the marketplace has ever seen, but that doesn’t mean she knows how to organize a company, handle accounting, create marketing strategies, develop budgets, handle legal issues, prepare taxes and perform the many tasks required to operate a business. A business plan should demonstrate that the principals not only know how to make a product or deliver a service, but also will be able to manage all aspects of the business.
Adequate Funding and Capitalization
Even when a business starts making a profit from operations, it might still take months or years to pay off the initial start-up costs. Many small businesses fail because the owner believes he can fund the operations on sales. Sales volumes that will be more than adequate for making a profit in year two or three might not even be close to helping you meet your debt service obligations your first year. Demonstrate in a business plan that you have sufficient capitalization to run the business until break-even and afterward, or provide the amount of investment or loan you’ll need to start the business.
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Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.
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#5 Common Assumptions Made About Businesses Even after making profits, it often takes months or even years to pay off the initial investments
By Baishali Mukherjee • Nov 4, 2017
Opinions expressed by Entrepreneur contributors are their own.
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Assumptions are ideas that we presume to be true before taking decisions. Assumptions are also made in businesses for developing a strategy, planning and making decisions. These conjectures are generally standardized as disclosure of uncertainty and risk.
Business, in most cases, occurs in an unsure setting and assumptions are necessary to move ahead with stratagem. Documenting assumptions help in recognizing threats.
Often, you come up with fresh ideas after brainstorming probable assumptions that will help you in improvising your business strategies.
Here are some of the common types of business assumptions:
Even after making profits, it often takes months or even years to pay off the initial investments. Nilesh Biswas, Founder of Calcutta Skyline, a realty consulting firm and My Classroom, an education startup, believes enterprises fail because owners feel they can support the business operations on sales.
"Imagining sales volumes to be more than adequate for making a profit in next few years thereby helping you meet your debt service obligations, is a chimera. If you have sufficient capital to run the business until break-even, reveal that information in the plan. Otherwise, give the investment figures or loan amount you'll require to start off the business," he advised.
The next major assumption is the belief that consumers will be keen to buy your products or services, generating sufficient sales to make profit for the long run. Biswas wants your business plans to exhibit more figures as potential customers than required, as all will not buy from you and many will buy from rivals.
"Definite formulae do not exist to calculate this number; the surplus potential buyer base should be substantially more than the sales need. If 100 people are needed to buy from you each day, plan on the requirement of an exponential number, about five to 10 times the number wanted," he informed.
The assumption that key talent will be available is a dangerous one. According to Anuj Dhawan, Founder of Ridenest, an app targeted to ensuring women safety on public places, quality talent pool becomes a challenge. "The VC-funded fat pay-checks have made getting talent for bootstrapped companies quite a struggle. We have spent significant time in curating the people who would like to work with us," he shared.
Profitability is the ambition of every entrepreneur. However, the assumption must be validated by market research, financial planning and sales projections as sales is not the only factor determining profitability.
"After calculating the development and overhead costs, reassess the price to pay off your start-up costs and then start thinking of profit. Either decide on a pricing strategy to create high sales volumes by selling at a low price or capitalize on profit margins with a higher price," he explained.
Products are not created automatically and companies do not run themselves. Proceeding on a plan that the founders alone can run a business profitably leads invariably to disappointment. According to R. K. Agrawal , an independent business consultant who was the Managing Partner in S. R. Batliboi & Co ., the creators can make the brightest of products or gadgets that exist in the market but that doesn't mean they are armed with organizing, accounting, marketing, finance, legal, tax and other skills required to run a business.
"A business plan should lay bare that the founders while excelling in product making or service delivery, have planned for resources to manage other verticals of their business," added Agarwal, who has over 40 exposures in industries, including Steel, Paper, Cement, Automobiles, Textile, Milk & Dairy Products, etc. both in India and abroad.
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Questioning Key Assumptions in Your Business Plan
Asking the hard questions now will save you time and money in the future
Amanda McCormick is an entrepreneur, marketing consultant, and content strategist who has worked with arts and government organizations, including the New York City Ballet. She is the co-founder of a small marketing agency focused on arts and media companies.
Is There a Need for Your Product or Service?
Is there a significant customer base, can your business turn a profit, are you the right person to run your business, is your business funded appropriately, the swot analysis, frequently asked questions (faqs).
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Constructing a business plan is all about looking at and confronting assumptions. Consider the five following key assumptions, and you'll have a business plan—and future—in which you can be confident.
- A business plan is a document that helps a business communicate and organize its plans and strategies for the future.
- Sufficient market research is perhaps the most important part of starting a business.
- A SWOT analysis clarifies the business' strengths, weaknesses, opportunities, and threats.
- Asking yourself if you have the expertise to run all aspects of the business and whether or not you have sufficient capital is also important.
It's an obvious question, but many entrepreneurs overlook it. Knowing that there's a need for your product is different than having a hunch or a feeling. How do you know the difference? You do the research to find out. First, look at the competition. Are there others who have a similar offering and are they profitable?
Maybe you are breaking new ground -- that's no excuse for saying "there is no competition." Look around for evidence that your proposed business fulfills a concrete need. Without evidence to validate the need for your business, your business plan will fail.
As of December 2021, there were 32,540,953 million small businesses in the U.S.
The second assumption that's important to look at in your business planning preparation is whether or not there is a significant customer base for the business you are proposing. It can be a highly subjective question, as there are a number of successful niche businesses that serve small markets quite profitably. You are well-served to look at the concrete size of a potential market and to assign real dollar values to its potential.
Once you can decide that A) there is a need for your business and B) there is a sizable market for it, you are on solid ground to establish your business's potential profitability. But don't pluck numbers from the air.
You'll need to figure out what your startup costs are, as well as ongoing business-related expenses. You'll need to figure out a pricing structure that your customers will pay and will generate enough cash flow to keep the business running. After generating a set of realistic financial projections, you'll have a solid picture of your business' profit potential.
You believe in your business. You eat, sleep, and breathe it. But you're still going to have to make the case why you are uniquely qualified to start and run the business. As CEO, you'll also need to demonstrate the ability to delegate and find employees to complement your weaker points. First, know yourself, and second, be able to find the right people to bring into your management structure.
Financial projections are the place in the business plan that investors will flip to first. They want to know if you can understand the financial bottom line of running a business, or if your vision is unrealistic. Demonstrate in your business plan that you have a realistic startup budget, and you don't expect revenue to pour in within the first few months magically. Show that you have sufficient capitalization to run the business to break even.
Lack of sufficient capital is cited again and again as one of the top reasons why businesses fail.
A SWOT analysis , which stands for Strengths, Weaknesses, Opportunities, and Threats and is a popular strategic framework for business planners, is a great tool for questioning assumptions. The first two items refer to qualities that are internal to the business. The second two items are external factors. Consider the following in questioning your assumptions in writing a business plan around your fledgling operation:
- What does this company do well?
- What are our assets?
- What expert or specialized knowledge does the company have?
- What advantages do we have over competitors?
- What makes us unique?
- What resources do we lack?
- Where can we improve?
- What parts of the business are not profitable?
- What costs us the most time and money?
- What has the competition missed?
- What are the emerging needs of the customer?
- How can we use technology to cut costs and enhance reach?
- Are there new market segments to exploit?
- What are our competitors doing well?
- How do larger forces in the economy affecting our business?
- What is happening in the industry?
What is a SWOT analysis?
A SWOT analysis is a popular strategic framework used by business owners. It is performed throughout a business' existence and asks about its Strengths, Weaknesses, Opportunities, and Threats.
What percent of businesses fail within the first year?
According to data from the Bureau of Labor Statistics, around 1 in 5 (18.4%) of businesses fail within the first year and nearly half (49.7%) fail in the first five years.
Small Business Association. " Frequently Asked Questions ."
Small Business Association. " Selecting a Business That Fits ."
Bureau of Labor Statistics. " Survival of Private Sector Establishments by Opening Year ."
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Business assumptions: explained.
Business assumptions are the beliefs and expectations that you and your team have about the potential outcomes of a project, product, process, or service. They are based on the data, research, and experiences you have. Making assumptions can be beneficial to your business because they can help you make decisions and plan for the future. However, it is important to be aware of the potential challenges and risks of making assumptions so that you can take measures to avoid them. In this article, we will discuss what business assumptions are, their types, benefits, challenges, and strategies for making accurate assumptions.
What Are Business Assumptions?
Business assumptions are expectations or beliefs about the future outcomes of a project, product, process, or service. They are based on the data, research, and experiences that you have. Assumptions can be made about anything from customer behaviour to market trends. For example, a business may assume that a new product will be successful because of positive customer feedback from a recent market survey. Or they may assume that a particular target market will respond favourably to an advertising campaign.
Business assumptions are important for decision-making and planning. They help to inform the direction of a business and provide a basis for making decisions. Without assumptions, it would be difficult to make decisions or plan for the future. It is important to remember that assumptions are not always accurate and should be regularly reviewed and updated as new information becomes available.
Types of Business Assumptions
Business assumptions can be divided into two main categories: internal and external. Internal assumptions are those made within the company, such as the number of sales that will be achieved or the cost of production. External assumptions are those made outside of the company, such as the potential demand for a product or the response of the target market.
It is important to note that business assumptions are not always accurate. They are based on past experiences and trends, but can be affected by unexpected events or changes in the market. Therefore, it is important to regularly review and update assumptions to ensure that they remain relevant and accurate.
Benefits of Making Assumptions in Business
Making assumptions can be beneficial to your business because they can help you make decisions and plan for the future. For example, if you have a good understanding of customer behaviour, you can make accurate assumptions about how people will respond to your product or service. This can help you develop strategies and tactics to increase sales and improve customer satisfaction. Additionally, making assumptions can help you identify opportunities that you wouldn't have seen without the data.
Making assumptions can also help you anticipate potential problems and develop solutions before they arise. This can help you save time and money by avoiding costly mistakes. Additionally, making assumptions can help you identify areas of improvement and develop strategies to increase efficiency and productivity. By making assumptions, you can gain a better understanding of your business and the market, allowing you to make more informed decisions.
Challenges of Making Assumptions in Business
The biggest challenge of making assumptions is that they may not always be accurate. If your assumptions are inaccurate, then your decisions and plans may not be as successful as you had hoped. Additionally, making assumptions can be risky because if your assumptions turn out to be wrong, it can lead to lost time and resources. Therefore, it is important to properly evaluate and test your assumptions before taking any action.
Another challenge of making assumptions is that they can lead to a lack of creativity. When you make assumptions, you may be limiting yourself to a certain set of ideas and solutions. This can lead to a lack of innovation and creativity, which can be detrimental to the success of your business. Additionally, making assumptions can lead to a lack of collaboration, as you may not be open to other people's ideas and opinions.
How to Evaluate and Test Business Assumptions
In order to evaluate and test your business assumptions, it is important to gather data from reliable sources and conduct research. For example, if you are making an assumption about customer behaviour, then you should look at previous customer surveys or research studies on the subject. Additionally, you should talk to experts or people who have knowledge about the subject matter. This will help you gain a better understanding of the situation and make more accurate assumptions.
It is also important to consider the potential risks associated with your assumptions. For example, if you are assuming that a certain product will be successful, you should consider the potential risks of the product not selling as well as expected. Additionally, you should consider the potential costs associated with launching the product and the potential impact on your business if the product fails. By considering these risks, you can make more informed decisions about your assumptions.
Strategies for Making Accurate Assumptions in Business
There are several strategies that can help you make more accurate assumptions in business. The first is to collect data from reliable sources. This includes researching existing studies on the subject matter or talking to experts or people with direct experience. Additionally, it is important to be aware of potential biases that could lead to inaccurate assumptions. This includes things like confirmation bias or groupthink.
Examples of Commonly Used Business Assumptions
Some examples of commonly used business assumptions include assuming that a new product will be successful based on customer feedback from a survey or that customers will respond favourably to an advertising campaign. Additionally, businesses often make assumptions about potential demand for a product or service, as well as about the cost of production. It is important to note that these types of assumptions should be evaluated and tested before taking any action.
Tips for Avoiding Unnecessary Risk When Making Business Assumptions
It is important to be aware of the potential risks associated with making assumptions in business so that you can take measures to avoid them. One way to do this is to develop a process for testing and evaluating any assumptions that you make. Additionally, it is important to be aware of potential biases that could lead to inaccurate assumptions. Finally, it is important to gather data from reliable sources and talk to experts or people with direct experience when making assumptions.
Business assumptions can be beneficial to your business because they can help you make decisions and plan for the future. However, it is important to be aware of the potential challenges and risks of making assumptions so that you can take measures to avoid them. In this article, we discussed what business assumptions are, their types, benefits, challenges, strategies for making accurate assumptions, examples of commonly used business assumptions, and tips for avoiding unnecessary risk when making business assumptions.
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Financial Assumptions and Your Business Plan
Written by Dave Lavinsky
Financial assumptions are an integral part of a well-written business plan. You can’t accurately forecast the future without them. Invest the time to write solid assumptions so you have a good foundation for your financial forecast.
Download our Ultimate Business Plan Template here
What are Financial Assumptions?
Financial assumptions are the guidelines you give your business plan to follow. They can range from financial forecasts about costs, revenue, return on investment, and operating and startup expenses. Basically, financial assumptions serve as a forecast of what your business will do in the future. You need to include them so that anyone reading your plan will have some idea of how accurate its projections may be.
Of course, your financial assumptions should accurately reflect the information you’ve given in your business plan and they should be reasonably accurate. You need to keep this in mind when you make them because if you make outlandish claims, it will make people less likely to believe any part of your business plan including other financial projections that may be accurate.
That’s why you always want to err on the side of caution when it comes to financial assumptions for your business plan. The more conservative your assumptions are the more likely you’ll be able to hit them, and the less likely you’ll be off by so much that people will ignore everything in your plan.
Why are Financial Assumptions Important?
Many investors skip straight to the financial section of your business plan. It is critical that your assumptions and projections in this section be realistic. Plans that show penetration, operating margin, and revenues per employee figures that are poorly reasoned; internally inconsistent, or simply unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well-reasoned financial assumptions and projections communicate operational maturity and credibility.
For instance, if the company is categorized as a networking infrastructure firm, and the business plan projects 80% operating margins, investors will raise a red flag. This is because investors can readily access the operating margins of publicly-traded networking infrastructure firms and find that none have operating margins this high.
As much as possible, the financial assumptions should be based on actual results from your or other firms. As the example above indicates, it is fairly easy to look at a public company’s operating margins and use these margins to approximate your own. Likewise, the business plan should base revenue growth on other firms.
Many firms find this impossible, since they believe they have a breakthrough product in their market, and no other company compares. In such a case, base revenue growth on companies in other industries that have had breakthrough products. If you expect to grow even faster than they did (maybe because of new technologies that those firms weren’t able to employ), you can include more aggressive assumptions in your business plan as long as you explain them in the text.
The financial assumptions can either enhance or significantly harm your business plan’s chances of assisting you in the capital-raising process. By doing the research to develop realistic assumptions, based on actual results of your or other companies, the financials can bolster your firm’s chances of winning investors. As importantly, the more realistic financials will also provide a better roadmap for your company’s success.
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Financial assumptions vs projections.
Financial Assumptions – Estimates of future financial results that are based on historical data, an understanding of the business, and a company’s operational strategy.
Financial Projections – Estimates of future financial results that are calculated from the assumptions factored into the financial model.
The assumptions are your best guesses of what the future holds; the financial projections are numerical versions of those assumptions.
Key Assumptions By Financial Statement
Below you will find a list of the key business assumptions by the financial statement:
The income statement assumptions should include revenue, cost of goods sold, operating expenses, and depreciation/amortization, as well as any other line items that will impact the income statement.
When you are projecting future operating expenses, you should project these figures based on historical information and then adjust them as necessary with the intent to optimize and/or minimize them.
The balance sheet assumptions should include assets, liabilities, and owner’s equity, as well as any other line items that will impact the balance sheet. One of the most common mistakes is not including all cash inflows and outflows.
Cash Flow Statement
Cash flow assumptions should be made, but they do not impact the balance sheet or income statement until actually received or paid. You can include the cumulative cash flow assumption on the financial model to be sure it is included with each year’s projections.
The cumulative cash flow assumption is useful for showing your investors and potential investors how you will spend the money raised. This line item indicates how much of the initial investment will be spent each year, which allows you to control your spending over time.
Notes to Financial Statements
The notes to financial statements should explain assumptions made by management regarding accounting policies, carrying value of long-lived assets, goodwill impairment testing, contingencies, and income taxes. It is important not only to list these items within the notes but also to provide a brief explanation.
What are the Assumptions Needed in Preparing a Financial Model?
In our article on “ How to Create Financial Projections for Your Business Plan ,” we list the 25+ most common assumptions to include in your financial model. Below are a few of them:
For EACH key product or service you offer:
- What is the number of units you expect to sell each month?
- What is your expected monthly sales growth rate?
For EACH subscription/membership you offer:
- What is the monthly/quarterly/annual price of your membership?
- How many members do you have now or how many members do you expect to gain in the first month/quarter/year?
- What is your monthly salary? What is the annual growth rate in your salary?
- What is your monthly salary for the rest of your team? What is the expected annual growth rate in your team’s salaries?
- What is your initial monthly marketing expense? What is the expected annual growth rate in your marketing expense?
Assumptions related to Capital Expenditures, Funding, Tax and Balance Sheet Items
- How much money do you need for capital expenditures in your first year (to buy computers, desks, equipment, space build-out, etc.)
- How much other funding do you need right now?
- What is the number of years in which your debt (loan) must be paid back
Properly Preparing Your Financial Assumptions
So how do you prepare your financial assumptions? It’s recommended that you use a spreadsheet program like Microsoft Excel. You’ll need to create separate columns for each line item and then fill in the cells with the example information described below.
Part 1 – Current Financials
Year to date (YTD) units sold and units forecast for next year. This is the same as YTD revenue, but you divide by the number of days in the period to get an average daily amount. If your plan includes a pro forma financial section, your financial assumptions will be projections that are consistent with the pro forma numbers.
Part 2 – Financial Assumptions
Estimated sales forecasts for next year by product or service line, along with the associated margin. List all major items in this section, not just products. For instance, you might include “Professional Services” as a separate item, with revenue and margin information.
List the number of employees needed to support this level of business, including yourself or key managers, along with your cost assumptions for compensation, equipment leasing (if applicable), professional services (accounting/legal/consultants), and other line items.
Part 3 – Projected Cash Flow Statement and Balance Sheet
List all key assumptions like: sources and uses of cash, capital expenditures, Planned and Unplanned D&A (depreciation & amortization), changes in operating assets and liabilities, along with those for investing activities. For example, you might list the assumptions as follows:
- Increases in accounts receivable from customers based on assumed sales levels
- Decreases in inventory due to increased sales
- Increases in accounts payable due to higher expenses for the year
- Decrease in unearned revenue as evidenced by billings received compared with those projected (if there is no change, enter 0)
- Increase/decrease in other current assets due to changes in business conditions
- Increase/decrease in other current liabilities due to changes in business conditions
- Increases in long term debt (if necessary)
- Cash acquired from financing activities (interest expense, dividends paid, etc.)
You make many of these assumptions based on your own experience. It is also helpful to look at the numbers for public companies and use those as a benchmark.
Part 4 – Future Financials
This section is for more aggressive financial projections that can be part of your plan, but which you cannot necessarily prove at the present time. This could include:
- A projection of earnings per share (EPS) using the assumptions above and additional information such as new products, new customer acquisition, expansion into new markets
- New product lines or services to be added in the second year. List the projected amount of revenue and margin associated with these items
- A change in your gross margins due to a specific initiative you are planning, such as moving from a high volume/low margin business to a low volume/high margin business
Part 5 – Calculations
Calculate all critical financial numbers like:
- Cash flow from operating activities (CFO)
- Operating income or loss (EBITDA) (earnings before interest, taxes, depreciation, and amortization)
- EBITDA margin (gross profits divided by revenue less cost of goods sold)
- Adjusted EBITDA (CFO plus other cash changes like capital expenditure, deferred taxes, non-cash stock compensation, and other items)
- Net income or loss before tax (EBT)
- Cash from financing activities (increase/decrease in debt and equity)
Part 6 – Sensitivity Analysis
If your assumptions are reasonably accurate, you will have a column for “base case” and a column for “worst case.” If you have a lot of variables with different possible outcomes, just list the potential range in one cell.
Calculate both EBITDA margins and EPS ranges at each level.
Part 7 – Section Highlights
Just list the two or three key points you want to make. If it is hard to distill them down, you need to go back and work on Part 3 until it makes sense.
Part 8 – Financial Summary
Include all the key numbers from your assumptions, section highlights, and calculations. In one place, you can add up CFO, EPS at different levels, and EBITDA margins under both base case and worst-case scenarios to give a complete range for each assumption.
The key to a successful business plan is being able to clearly communicate your financial assumptions. Be sure to include your assumptions in the narrative of your plan so you can clearly explain why you are making them. If you are using the business plan for financing or other purposes, it may also be helpful to include a separate “financials” section so people unfamiliar with your industry can quickly find and understand key information.
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Other Resources for Writing Your Business Plan
- How to Write an Executive Summary
- How to Expertly Write the Company Description in Your Business Plan
- How to Write the Market Analysis Section of a Business Plan
- The Customer Analysis Section of Your Business Plan
- Completing the Competitive Analysis Section of Your Business Plan
- How to Write the Management Team Section of a Business Plan + Examples
- How to Create Financial Projections for Your Business Plan
- Everything You Need to Know about the Business Plan Appendix
- Business Plan Conclusion: Summary & Recap
Other Helpful Business Plan Articles & Templates
Lean Business Planning
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List Business Plan Assumptions
Identify and list business plan assumptions. You will get real business benefits from the assumptions list in your business plan. Planning is about managing change, and in today’s world, change happens very fast. Assumptions solve the dilemma about managing consistency over time, without banging your head against a brick wall.
Assumptions might be different for each company. There is no set list. What’s best is to think about those assumptions as you build your twin action plans.
If you can, highlight product-related and marketing-related assumptions. Keep them in separate groups or separate lists.
You will use your business plan assumptions often
The key here is to be able to identify and distinguish, later (during your regular reviews and revisions, in Section 3), between changed assumptions and the difference between planned and actual performance. You don’t truly build accountability into a planning process until you have a good list of assumptions that might change.
Some of these business plan assumptions assumptions go into a table, with numbers, if you want. For example, you might have a table with interest rates if you’re paying off debt, or tax rates, and so on.
Many assumptions deserve special attention. Have a bullet point list. Maybe in slides. Maybe just a simple list. Keep them on top of your mind, where they’ll come up quickly at review meetings.
Maybe you’re assuming starting dates of one project or another, and these affect other projects. Contingencies pile up. Maybe you’re assuming product release, or seeking a liquor license, or finding a location, or winning the dealership, or choosing a partner, or finding the missing link on the team.
Maybe you’re assuming some technology coming on line at a certain time. You’re probably assuming some factors in your sales forecast, or your expense budget; if they change, note it, and deal with them as changed assumptions. You may be assuming something about competition. How long do you have before the competition does something unexpected? Do you have that on your assumptions list?
An Assumptions Example
The illustration below shows the simple assumptions in the bicycle shop sample business plan.
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What Are the Key Assumptions of a Business Plan?
by Mariel Loveland
Published on 28 May 2019
We make more assumptions in business plans than you might realize. It is, after all, a plan for something you’re going to do, not something that’s already happened. In order to have the most successful business plan, you need to have a few key assumptions that point to certain areas of your business and how it’s going to function. These assumptions attract potential investors, help secure bank loans and help put you on a path to having a profitable venture.
Before making serious decisions about your startup, you must examine the key assumptions in your business plan.
Key Assumptions Definition
In a business plan, a key assumption’s definition is basically the most important who, what, when and how you need to run your business. Every business plan is filled with assumptions. We can’t accurately say whether a business will for sure be profitable or that you’ll be able to pay off your loan in some number of years, but you can make a really educated assumption.
The most important of these assumptions are called key assumptions, and potential investors usually need to see this information before they decide to put in money. Business plan assumptions examples range from financing, consumer base and profitability to management and resources.
Key Assumption 1: Finances
One of the business plan assumptions examples is finances. Do you have the funding to run your company until it becomes profitable? How are you going to pay for all of the expensive things a business requires – this includes office rent, salaries, insurance, products and marketing.
It’s extremely important to include financial projections in your business plan to help convince investors or banks that your company has a realistic path to success. It doesn’t have to be immediate. Companies often take years to turn a profit, and one of the largest mistakes that business owners make is assuming that sales alone will support business operations.
Your business will be most attractive to potential investors if you have enough capital to run until you think you’ll break even. As a key assumption, you should disclose investment figures and loan amounts in your business plan.
Key Assumptions 2: Consumer Base
The key assumptions definition is assumptions that are key (i.e. your business plan is a failure without them). When it comes down to it, nothing is more important to a business than having actual customers. Who are you generating sales from? Are you a "b2b" business (selling to other business) or "b2c" (selling directly to individual customers). Who are the people you’re servicing?
As one of the key assumptions in a business plan, your customer base must be outlined carefully. Yes, a niche business can be successful, but you should really show that there’s enough of a customer base to turn a profit. You should also note the potential to tap into other markets or expand to different types of consumers.
Key Assumptions 3: Need
Your company isn’t worth anything if nobody actually needs what you’re offering. Yes, you might have a certain consumer base, but investors need to know why people will choose your product over others. This is one of the key assumptions in a business plan that might just be the most important of all.
As one of the many business plan assumptions examples, need might require the most research. You’re going to have to look into your competitors – be it locally or nationally – and figure out what makes your product different. Outline the need and how your product fills that hole. If you can’t figure this out, your business will undoubtedly fail.
Key Assumptions 4: Resources
You can’t run a business if you’re short on resources. That’s why this is a key assumption that should be worked into every business plan. You need to make sure you have the resources – whether that’s access to qualified employees or specialized equipment – before securing a loan or funding. No one is going to want to invest in a company that can’t get off the ground.
One of the most dangerous assumptions for potential startup owners is believing you’ll have access to top talent. In reality, that talent might not want to work for you in favor of a fully-funded tech startup with a fat paycheck and some history of proven success. Keep an eye out for talent pools and try to secure some talent before approaching investors.
Key Assumptions 5: Profitability
We might really believe in our products and the value they give our communities and consumer base, but investors really only care about the bottom line: can you turn a profit? Outline this clearly in your business plan. How many months do you think it will take to start becoming profitable. What steps do you have in place to make sure this ultimate goal is realized?
ideas to numbers .. simple financial projections
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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.
Business Plan Assumptions List
Inflation rates and foreign exchange rates, sales and marketing, cash collection, distribution, research and development, fixed assets, gross margin, operating expenses, depreciation.
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.
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.