example of financial assumption in business plan

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.

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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:

Income 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.

Balance Sheet

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?

Cost Assumptions

• 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.

How to Finish Your Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan and financial projections?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

It includes a full financial model. It lists all the key financial assumptions and you simply need to plug in answers to the assumptions and your complete financial projections (income statement, balance sheet, cash flow statement, charts and graphs) are automatically generated!

Click here to see how Growthink’s professional business plan consulting services can create your business plan for you.

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.

Click here to see how our professional business plan writers can create your business plan for you.

If you just need a financial model for your business plan, learn more about our financial modeling services .  

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

Financial Plan Assumptions

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on July 11, 2023

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Table of contents, what are financial plan assumptions.

Financial plan assumptions are the key variables, estimates, and predictions used to develop a company's financial projections and strategy. They serve as the foundation for forecasting revenues , costs, investments, and taxes , among other elements.

Assumptions are critical in financial planning because they help businesses set realistic goals, allocate resources efficiently, and identify potential risks and opportunities. They also enable management to make informed decisions based on the best available data and industry insights.

Financial plan assumptions aim to create a comprehensive picture of a company's future financial performance by incorporating a range of factors.

These assumptions are designed to be flexible and adaptable, allowing for adjustments as new information becomes available or market conditions change.

Key Financial Plan Assumptions

Revenue assumptions, sales growth rate.

The sales growth rate is a crucial revenue assumption that estimates the percentage increase in a company's sales over a specific period. This rate takes into account factors such as historical sales data, market trends, and promotional efforts.

Pricing Strategies

Pricing strategies help determine the prices of a company's products or services. Assumptions related to pricing may include competitor pricing, price elasticity of demand, and the company's overall pricing objectives.

Market Share

Market share assumptions predict a company's percentage of total sales within a specific market. Estimations consider factors such as target customer segments, marketing strategies, and product or service differentiation.

Customer Acquisition and Retention

Customer acquisition and retention assumptions estimate the number of new customers acquired and existing customers retained. These assumptions depend on factors such as marketing efforts, customer service quality, and competitive positioning.

Cost Assumptions

Fixed and variable costs.

Fixed and variable costs are essential components of a company's financial plan . Fixed costs include expenses that remain constant, regardless of production levels or sales, such as rent and salaries. Variable costs vary with production or sales, including raw materials and shipping costs.

Cost of Goods Sold (COGS)

COGS is the total cost of producing goods or services sold by a company. Key assumptions for COGS may include production costs , labor costs, and manufacturing overheads.

Operating Expenses

Operating expenses are the costs associated with running a business, excluding COGS. Assumptions for operating expenses may include marketing costs, administrative expenses, and research and development expenditures .

Inflation Rate

The inflation rate assumption estimates the increase in the general price level over time. This assumption affects various cost projections, such as wages, raw materials, and utilities.

Investment Assumptions

Capital expenditures.

Capital expenditures represent the funds a company invests in long-term assets, such as property, plant, and equipment. Assumptions for capital expenditures may include the anticipated level of investment , the useful life of assets , and depreciation methods.

Working Capital Requirements

Working capital assumptions estimate the funds needed to cover short-term operating expenses and maintain sufficient liquidity . These assumptions may include projections for inventory levels, accounts receivable , and accounts payable .

Financing Sources and Costs

Financing assumptions help determine how a company will fund its operations and investments. These assumptions include the mix of debt and equity financing, interest rates , and repayment terms.

Tax Assumptions

Corporate tax rates.

Corporate tax rate assumptions estimate the percentage of a company's profits subject to taxation. These assumptions take into account federal, state, and local tax rates, as well as any changes to tax laws.

Tax Credits and Incentives

Tax credits and incentives are reductions in tax liability offered by governments to encourage specific business activities. Assumptions related to tax credits may include eligibility criteria, application deadlines, and the expected amount of tax savings.

Tax Planning Strategies

Tax planning strategies are methods used by companies to minimize their tax liabilities. Assumptions related to tax planning may include the use of tax-efficient structures, deductions, and loss carryforwards.

Economic and Industry Assumptions

Macroeconomic factors.

Gross domestic product (GDP) growth rate assumptions estimate the overall economic growth of a country or region. These assumptions impact a company's revenue projections, as they help gauge the general health of the economy and consumer spending.

Interest Rates

Interest rate assumptions estimate the cost of borrowing or lending money. These rates affect a company's financing costs, investment decisions, and overall financial performance.

Unemployment Rates

Unemployment rate assumptions predict the percentage of the labor force without jobs. High unemployment rates can impact consumer spending and may indicate a sluggish economy, affecting a company's sales projections.

Industry Trends and Competition

Market size and growth.

Market size and growth assumptions help estimate the overall potential of an industry and the opportunities it presents for a company. Factors considered may include historical data, demographic trends, and technological advancements.

Technological Advancements

Technological advancements can disrupt industries and create new markets. Assumptions related to technology may include the adoption of new technologies, the impact of innovations on the market, and the potential for competitive advantage.

Regulatory Changes

Regulatory changes can significantly impact a company's operations and financial performance. Assumptions related to regulation may include potential changes in laws, compliance requirements, and the effects on the industry landscape.

Competitive Landscape

Competitive landscape assumptions evaluate a company's position within its industry and the level of competition it faces. These assumptions may consider factors such as market share, competitor strategies, and barriers to entry.

Sensitivity Analysis and Scenario Planning

Identifying key variables and uncertainties.

Sensitivity analysis and scenario planning involve identifying key variables and uncertainties in a company's financial plan. These variables may include economic factors, industry trends, or company-specific factors.

Developing Scenarios and Assumptions

Scenario planning involves creating alternative future scenarios based on varying assumptions. Companies develop multiple scenarios to explore the potential impact of different events, trends, and risks on their financial performance.

Analyzing the Impact on Financial Performance

Companies analyze the impact of different scenarios on their financial performance to identify potential risks and opportunities. This analysis helps management make informed decisions and adapt their strategies as needed.

Risk Mitigation and Contingency Planning

Based on the results of sensitivity analysis and scenario planning, companies develop risk mitigation and contingency plans. These plans help companies prepare for potential challenges and capitalize on emerging opportunities.

Regular Review and Update of Assumptions

Importance of ongoing monitoring.

Regularly reviewing and updating financial plan assumptions is essential to ensure their continued relevance and accuracy. Ongoing monitoring helps companies stay informed of market changes and adapt their strategies accordingly.

Frequency of Assumption Updates

The frequency of assumption updates depends on the nature of the company and its industry. Companies operating in rapidly changing environments may need to update their assumptions more frequently than those in more stable industries.

Incorporating New Information and Data

As new information and data become available, companies should incorporate them into their financial plan assumptions. This ensures that the assumptions remain relevant and provide an accurate basis for decision-making.

Adjusting Financial Plans as Needed

Based on updated assumptions, companies may need to adjust their financial plans to reflect changes in market conditions, industry trends, or company-specific factors. Regular adjustments help maintain the accuracy and relevance of financial projections.

Financial plan assumptions play a crucial role in the development of a company's financial strategy and projections. By incorporating a wide range of factors and estimates, assumptions help create a comprehensive picture of a company's future financial performance.

Regularly reviewing and updating financial plan assumptions is essential for ensuring their continued relevance and accuracy. As new information becomes available or market conditions change, companies must adapt their assumptions and adjust their financial plans accordingly.

Sensitivity analysis and scenario planning are valuable tools for managing risks and identifying potential opportunities.

By analyzing the impact of different scenarios on a company's financial performance, management can make informed decisions and develop risk mitigation and contingency plans.

In conclusion, financial plan assumptions are critical components of a company's financial planning process.

By incorporating a wide range of factors and regularly reviewing and updating these assumptions, companies can create accurate financial projections, identify potential risks and opportunities, and make informed decisions that drive their long-term success.

Financial Plan Assumptions FAQs

What are financial plan assumptions, and why are they important.

Financial plan assumptions are the underlying estimates and predictions that a financial plan is based upon. They are essential because they provide the framework for determining how much money you need to save, how much you can expect to earn on your investments, and how long your money will last in retirement.

How do I choose the right financial plan assumptions for my personal financial plan?

The right financial plan assumptions will depend on your personal circumstances, financial goals, and risk tolerance. You should consider your current income, expenses, debts, and assets when selecting your assumptions. Additionally, you should consider factors such as inflation, investment returns, and life expectancy.

What are some common financial plan assumptions used by financial planners?

Common financial plan assumptions used by financial planners include assumptions about inflation rates, investment returns, life expectancy, and tax rates. Other assumptions may include future expenses such as college tuition or medical costs, changes in income or employment, and changes in interest rates.

How often should I review and update my financial plan assumptions?

You should review and update your financial plan assumptions regularly, at least annually, and whenever there are significant changes in your life circumstances, such as a new job, a significant change in income or expenses, or a change in your investment portfolio.

What are the potential risks of relying on incorrect financial plan assumptions?

Relying on incorrect financial plan assumptions can lead to a variety of risks, including not saving enough for retirement, running out of money in retirement, or being unable to meet other financial goals. Additionally, incorrect assumptions can lead to poor investment decisions, resulting in lower investment returns and higher taxes. It is essential to ensure that your financial plan assumptions are as accurate as possible to help you achieve your financial goals.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Part 2: Your Current Nest Egg

Part 3: confidence going into retirement, how comfortable are you with investing.

• Very comfortable
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How confident are you in your long term financial plan?

• Very confident
• Somewhat confident
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What is your risk tolerance?

How much are you saving for retirement each month.

• None currently
• Minimal: $50 - $200
• Steady Saver: $200 - $500
• Serious Planner: $500 - $1,000
• Aggressive Saver: $1,000+

How much will you need each month during retirement?

• Bare Necessities: $1,500 - $2,500
• Moderate Comfort: $2,500 - $3,500
• Comfortable Lifestyle: $3,500 - $5,500
• Affluent Living: $5,500 - $8,000
• Luxury Lifestyle: $8,000+

Part 4: Getting Your Retirement Ready

What is your current financial priority.

• Getting out of debt
• Growing my wealth
• Protecting my wealth

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What Are the Financial Assumptions on a Business Plan?

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How to Obtain Short-Term Financing for a Business

Keys to a successful business pitch, how to write the perfect business plan.

• How to Start a Candy Store Business
• How to Write a One-Year Profit Projection Letter

Business plans are required for all small businesses seeking loans or investors. Financial assumptions and projections are critical components of all business plans. Three universal financial presentations are expected in all business plans.

You must include a projected income statement, balance sheet and cash flow statement for the coming three to five years. Along with the numbers, include a narrative that explains your assumptions and how the line items were computed.

Financial assumptions and projections are critical components of all business plans. They include income and expense assumptions, as well as the inventory and accounts receivable in the balance sheet. Assumptions for balance sheet presentations should be conservative and based on reasonable expectations of asset acquisitions in the coming five years. These will help to construct the assumptions in the cash flow statement.

Construct an Income Statement

Construct your income statement on a month-to-month basis for the first one to two years. You can then switch to quarterly projections for years three through five. One key item dominates this presentation. Base your income and expense assumptions on factual, verifiable information.

For example, if your product competitively sells for $25 to $40, refrain from using a $60 selling price to craft your sales projections. Also, base your sales volume assumptions on realistic statistics, easily verified by a quick market analysis.

Balance Sheet Presentations

Assumptions for balance sheet presentations should be conservative and based on reasonable expectations of asset acquisitions in the coming five years. Of particular concern to lenders and investors are inventory and accounts receivable. Both are functions of sales. Therefore, carefully match your inventory assumptions with your gross income projections.

Unless accounts receivable are typically large in your industry, do not project high balances. Because cash is usually in short supply for small businesses, tying up this precious resource in excessive inventory or accounts receivable can be damaging.

Cash Flow Statement

If you have a new small business or a modest company needing financing or investment, the projected cash flow Statement may be the most important financial assumption you make. While both lenders and investors want your small business to generate solid net income and have a strong balance sheet, cash flow is more important. It is from cash flow that you can repay loans or distribute cash to investors from profits.

Warning when Making Assumptions

Making financial projections based on solid assumptions is wonderful. But you must explain the derivation and calculations to give business plan readers confidence in your data. Don't commit newer entrepreneur mistakes. Many spend hours pouring over data and create reasonable financial projections.

However, newbies often forget or feel inadequate to explain their assumptions in text format. Assuming that loan officers are experts in reading business plans is smart. However, assuming they are experts in your industry is a mistake. Write as detailed a narrative as possible for your financial assumptions, with references that your loan officer can verify.

Diligent Research and Expert Insight

Making valid financial assumptions, and explaining them clearly, can make the difference in receiving the funds you need or suffering rejection by lenders or investors. Often, the primary reason for approval or rejection relates to your display of expertise in your industry. Perform your industry and competition research diligently and with a total focus on becoming an expert. You must then make financial assumptions based on this expertise – and communicate this clearly in your business plan. Your financial assumptions will be challenged. Have knowledgeable answers ready for these challenges.

• Growthink: How to Develop Reasonable Financial Assumptions
• Inc.: How to Write the Financial Section of a Business Plan
• Rodgers Associates: Three Key Assumptions To Make in Financial Planning
• PlanWare: Software to Make Good Financial Projections

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What Are Financial Assumptions in a Business Plan?

Financial assumptions are an integral part of any business plan .

They provide a foundation for the financial projections and help investors and stakeholders understand the underlying assumptions behind the numbers.

Financial assumptions can cover a wide range of topics, including revenue growth, cost of goods sold, expenses, and capital expenditures.

In this blog post, we’ll explore what financial assumptions are, how they are used in a business plan, and how to create realistic financial assumptions for your business.

What are Financial Assumptions in a Business Plan?

Financial assumptions are estimates or predictions about future financial performance. They are used to forecast a company’s revenue, expenses, and profits over a certain period. Financial assumptions are based on historical data, market trends, and the company’s own goals and strategies.

In a business plan, financial assumptions are used to create financial projections, which are detailed estimates of a company’s future financial performance.

Financial projections can include a profit and loss statement, a balance sheet, and a cash flow statement. These projections are based on the financial assumptions made in the business plan, and they help investors and stakeholders understand the expected financial performance of the company.

How Financial Assumptions Impact a Business Plan

Financial assumptions play a crucial role in a business plan, as they help to shape the overall financial strategy of the company.

By providing a foundation for financial projections, financial assumptions help to inform key decisions such as how much to invest in marketing and sales efforts, how much to allocate towards research and development, and how much to set aside for operating expenses.

It’s important to note that financial assumptions are just that - assumptions. They are based on the best information available at the time the business plan is written, but they are not guarantees of future performance.

To create realistic financial assumptions, it’s important to consider a range of factors, including market trends, industry benchmarks, and the company’s own goals and capabilities.

If the financial assumptions in a business plan turn out to be too optimistic or unrealistic, it can harm the overall financial performance of the company.

On the other hand, if the financial assumptions are too conservative, the company may miss out on potential opportunities for growth and expansion.

It’s important to strike a balance and create financial assumptions that are both realistic and ambitious.

Creating Realistic Financial Assumptions

As mentioned, it’s important to create realistic financial assumptions in a business plan. This can help to ensure that the financial projections are accurate and achievable, and it can also help to build credibility with investors and stakeholders.

There are a few key factors to consider when creating financial assumptions for a business plan.

Market trends

It’s important to consider the current state of the market and how it is likely to evolve in the future. This includes factors such as economic conditions, consumer demand, and competition.

Industry benchmarks

It can be helpful to compare your financial assumptions to industry benchmarks to see how they compare. This can give you a sense of whether your assumptions are realistic in the context of your industry.

Company goals and capabilities

Your financial assumptions should be aligned with the goals and capabilities of your company. It’s important to consider the resources and expertise that you have at your disposal, as well as any potential constraints or challenges that you may face.

By considering these factors and creating financial assumptions that are grounded in reality, you can help to ensure that your business plan is realistic and achievable.

Revising Financial Assumptions

As a business grows and evolves, it’s important to periodically review and revise the financial assumptions in the business plan. This can help to ensure that the financial projections remain accurate and relevant.

There are a few key signs that it may be time to revise your financial assumptions.

Changes in the market

If there have been significant changes in the market since the business plan was written, it may be necessary to revise the financial assumptions. This could include changes in economic conditions, consumer demand, or competition.

Changes within the company

If there have been significant changes within the company, such as new products or services, changes in leadership, or shifts in strategy, it may be necessary to revise the financial assumptions.

Differences between actual and projected performance

If there is a significant gap between the actual financial performance of the company and the projected performance based on the financial assumptions in the business plan, it may be necessary to revise the assumptions.

By regularly reviewing and revising the financial assumptions in your business plan, you can help to ensure that the financial projections remain accurate and relevant and that your company is well-positioned for future growth and success.

Just like marketing assumptions , financial assumptions are an essential part of any business plan.

By creating realistic financial assumptions that are grounded in market trends, industry benchmarks, and the company’s own goals and capabilities, and by regularly reviewing and revising these assumptions as needed, you can help to ensure that your business plan is realistic and achievable.

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How Financial Assumptions Can Make Or Break Your Business Plan

May 9, 2022

Adam Hoeksema

A business plan is only as good as its financial assumptions. These are the key input data that your financial projections will extrapolate from and will form a picture of the future of your company. With a robust method of researching for these assumptions, and then the corresponding analysis of the available data, you’re left with more accurate assumptions, leading to a more realistic picture of your financial future. 

Conversely, with weak assumptions from lack of sufficient research or bad analysis, you can get a dramatically different output that doesn’t remotely reflect reality. When looking for outside investment, these are the skills a savvy investor is going to value in an entrepreneur. So how best to improve your assumptions? Keep reading for the answer.

Financial Assumptions

Any entrepreneur, startup founder, or young company is going to need to form detailed financial reports, including forecasts and projections of the financial situation to come. These documents rely entirely on input data to extrapolate from, and these data are based on historical records and key assumptions . 

The accuracy of these financial assumptions determines the accuracy of the output of these projections, and since the divergence from reality increases over time, it’s important for them to be as accurate as possible to precisely depict a realistic situation in the future. 

The importance of these assumptions comes into play significantly when trying to attract capital from outside. These investors or lenders will be looking closely at your assumptions as a metric of your credibility; strong assumptions show you’ve done your due diligence and you know what you’re talking about. Weak ones will greatly harm your chances of success. 

Here we’re going to go over the basics of financial assumptions, what they’re for, and common mistakes people make with them. 

The Role of Financial Assumptions in Forecasting

In business planning, forecasting is a crucial step in visualizing how a company will perform in the future. Companies forecast future outcomes based on past and current data, using assumptions. 

Forecasted elements of a financial plan include revenue, margin, and expenses, among others. When done accurately, these forecasts allow businesses to: 

• Predict future expenses
• Make budgets
• Make informed decisions about the direction of the company
• Plan growth and financing options

However, accuracy requires more than just historical data; it’s important to input the rate of change over time correctly, and this is where assumptions come in. 

Essentially, assumptions are educated guesses about the nature of your business and its market, and how these will affect future outcomes in your forecasts. As projections reach further into the future, the need for accuracy of the input assumptions increases. Small mistakes become significantly larger over time, and this skews projections to the point of making them worthless. 

For investors to take notice, you’ll need accurate and well-thought-out assumptions that aren’t plucked from thin air. We’ll go into more detail about how to find these assumptions shortly, but first, let’s consider why accuracy is so important. 

The Importance of Accuracy in Financial Assumptions

The financial statements of a business plan are an indication of the company’s profitability. They are the strongest display of the worthiness of investment that your company has, therefore, they’re going to need to be founded on accurate assumptions. 

Even with relatively accurate initial figures, long-term projections can still be way off the mark. Essentially, any forecast is a calculation with decreasing accuracy over time, which is why they usually don’t project out past time frames of longer than around five years. Take the following example:

Let’s say you’ve done the research into the market, into the reducing costs of production over time, the rapid expected growth of your company, and the increase in value you’re going to make to your product or service over the next few years. What comes out is an assumed increase in revenue projected into the future.  

If you assume your total revenue will increase by 20% over 5 years with a starting revenue of $20,000, the first-year outcome will be $24,000, an increase of four thousand dollars. The fifth-year outcome will be $49,767; an increase of almost thirty thousand dollars. 

If your initial assumption is off by only 5% in either direction, the first year will show a difference from the above forecast of $1000 , either returning $23,000 or $25,000 at the low and high ends, respectively. 

This isn’t a huge amount of money at this stage, so a misjudgment of 5% seems reasonable. However, if we extend this effect to the fifth year, an error of 5% brings a difference of either $9,500 or $11,268 to what you had projected, depending on whether your assumption was low or high.

If you’re smart or lucky enough to have made a conservative assumption, you’re now $11k better off. On the other hand, if you were too hasty and overestimated in your assumption, you may now owe somebody over $9k. 

So, the effect of an assumption is greater with distance from the starting point. This means that when you’re designing a business plan to show to potential investors, they’re going to be very critical of your assumptions in order to assess the chances of their ROI in your company. 

Regardless of whether you assumed low or high, if there’s a discrepancy that becomes obvious to investors, it will make them question the rest of your estimates and how accurate you will be in future calculations. 

Therefore, accurate assumptions are critically Important to not only the precise understanding of the state of your company in the future but any chances of investors taking you seriously. Without good assumptions there is no forecast. Without a forecast, there’s not going to be any investment.

If your business is going to be relying on VC or other investors helping out, you’re going to find yourself out of luck. So, with that in mind, let’s take a look at some of the classic assumptions you’ll need to make when designing your forecasts and projections. 

Key Financial Assumptions Examples 

Building a business plan relies on numerous assumptions. These are the where, when, and how’s of your company, and will create projections in order for you to know where to direct your energy. The most important assumptions are called key assumptions, and without these, it’s going to be impossible to make informed decisions on the direction of your company. 

Changes in assumptions can dramatically alter the outcomes of your forecasts. If you assume, for example, that your product or service is going to have a decreasing churn rate - or loss of customers - over the coming years of service improvement, you have to know what that rate is going to decrease by each year for your forecast to be of any use.  

It’s worth thinking about these assumptions in terms of how you will persuade investors to commit. Here is a list of some of the areas in which key assumptions are needed for financial planning, for use as financial assumptions examples:

• Market – There’s no business without a market. This assumption isn’t so much a financial one as a general business one, but it has strong financial implications. 

By the time you come to financial planning for your startup, you should know who your ideal customer is and how you’re addressing their pain points.

You should also know how much they’re willing to spend on your product or service, which will come in handy for your income statement and cash flow projections. 

• Cost of production - Production cost changes over time. Even if it’s simply an increase in outgoings to match an increase in demand, this needs to be assumed. Usually, production costs can be reduced as economies of scale come into play, but regardless, it’s easy to overlook some data here.  

Calculating production costs involves covering rent for manufacturing spaces, materials, utilities such as power and water, and essentially every little thing that goes into the manufacture of your product or provision of your service. Obviously, these will be more or less complicated depending on the type of business you’re running.

This step is crucial for the following revenue and costs to be accurate.

• Cost of Sales – This one is closely related to the cost of production and there may be some overlap in these costs such as labor, so separate them as you wish, however, make sure to calculate the cost of distribution; shipping, handling, marketing, etc. it’s possible to combine these assumptions under production and sales for convenience.  
• Cost of Administration – This is a monthly expenditure covering all the outgoings related to your workforce and company maintenance. Payroll needs to be financially covered by any income or capital funding you’re expecting and this includes any bonuses you’re expecting to put out. One key assumption regarding bonuses will be in their timing, should you choose to pay them, and this needs to be factored into projections for costs.
• Pricing – This assumption should be made with detailed research backing it up. Since pricing alone can make or break your company, investors are going to want to see how you came up with your figures here. The costs of sales and production are going to determine your range of pricing options.

To accurately calculate prices, you’re going to need to understand how much value your product or service has to your customers, which is where the key assumptions from the Market section above come in. Pricing needs to match the value of what you’re offering, so this is the opposing force to the production and distribution costs, since it will always be pulling your price down towards its value, while costs of production and distribution will be pushing it up. 

• Sales Forecast – For every different service or product that you’re offering, a sales forecast needs to be calculated. For an accurate sales forecast, you’re going to need to know the desired sales funnel in detail and how long the conversion process will take. These assumptions need to be backed up by your market research.

Further, you’re going to have to make assumptions on when your sales will complete; this means how long banking processes will take, etc. These assumptions will be critical to accurately forecast your profits in your financial plan. 

• Cash Flow – This section will involve numerous key assumptions. Capital will hopefully be flowing into the company from numerous streams, and these need to be calculated well in order to project financial coverage of the aforementioned costs. 

Timings of loan payments, loan repayments, cash equity, and others need to be reliably assumed to make sound predictions in these cases. Interest adjustments or early repayment fees are also things to take into consideration, and if you will be offering customer credit, this will create more complexities to look into in terms of when you’ll see that capital again. 

These are some of the major areas in which financial assumptions are necessary, and their need for accuracy is obvious. An accurate assumption comes down to reliable and robust research and analysis practices, and for these, it’s important to follow the best practices of business planning, and consider expert help where needed. 

Of course, the specifics of these areas and their significance to your company will depend entirely on the type of service, product, business, or market you’re involved with. As such, there’s no standard template, but there are some key practices worth following.

Find Your Industry Specific Projections Template to Help Create Assumptions:

Why There are no one-size-fits-all Financial Assumptions

Startup founders and entrepreneurs need to provide convincing projections of the financial state of the company over the following years to reassure investors that their capital will be returned. They do this by creating robust assessments of their current state and the state of company and market metrics as accurately as possible and factoring them into projection calculations as assumptions.  

The best way to begin building your financial assumptions is to consider them from the perspective of an investor. If you’re looking to put down a significant investment in a project you’re going to want to guarantee your ROI, and to do that, you need to be persuaded of the project’s profitability.

Every company is different, and every market has its own needs and challenges. This is why there’s no strict financial assumptions template to follow, but by following these four basic principles, you’ll be closer to developing more accurate assumptions. 

At the planning stage of a company, the historical financial data simply won’t exist. This reduces the power of the financial assumptions, and even further necessitates their precision. The trouble is, this is a lengthy process. AQPC showed that even financial analysts spend almost half their time collecting and validating data, and they’re experts at it. 

This means you have to expect a grind. If you’re going it alone with this process, make sure to get a handle on your research methods, and which areas to focus on and in the right order. This is a topic for its very own article, but the point is, expect to dedicate and schedule a lot of time for this part of the process.

So we know the research is important, but how do you go about it? For costs of manufacturing, meeting with suppliers is essential to get written quotes for supplies covering any wholesale discounts that might be available. Then, for marketing and distribution, studying your market in depth is crucial to making accurate assumptions about the value of what you’re offering and how much it’ll cost to get it out there. 

Find out exactly where and how to look, and gather the necessary data on all the elements your company needs to be able to predict. From this, you will work on the analysis. 

Outsourcing 

There are definitely ways to go this alone, especially if this relates to a field you’re familiar with, but the option to use outside help shouldn’t be overlooked. ProjectionHub offers a range of services that can help with the financial planning process. From basic projection templates to detailed, expert guidance and tailored forecasting spreadsheets specifically designed for your business, there are a lot of useful options that can help speed up the process and improve your accuracy. 

Demonstration 

Finally, show your workings! If you’ve spent the due time and energy collecting and analyzing the data, it’s not going to matter if you can’t demonstrate how you came to the conclusions you did. Putting in the work is how you get accurate assumptions, but describing your process is how you persuade others to trust them. 

Financial forecasts are the backbone of a business plan for investors. They’re a demonstration that you’ve done your homework and you know what you’re doing, and with bold claims, there comes the need for strong evidence. 

Making assumptions is the key to any projection. Assumptions about change over time, consistency over time, and any other incomings and outgoings that you anticipate as part of the process. The accuracy of these assumptions is what makes or breaks a business plan, as they hold the key to future, long-term investment as well as countless other business choices made by decision-makers. 

If this seems like a daunting task, don’t’ worry. There are countless opportunities to take advantage of expert help with services like ours at  ProjectionHub , which provides templates and expert advice to get you started. 

Accurate assumptions should not be underestimated. Putting in the work at this stage of your financial projections will pay dividends and command great respect from investors. 

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 40,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

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How to Write a Small Business Financial Plan

Noah Parsons

4 min. read

Updated April 22, 2024

Creating a financial plan is often the most intimidating part of writing a business plan.

It’s also one of the most vital. Businesses with well-structured and accurate financial statements are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

• Key components of a financial plan

A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• How to improve your financial plan

Your financial statements are the core part of your business plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

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Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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Writing a Business Plan—Financial Projections

Spell out your financial forecast in dollars and sense

Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it can be difficult to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, short- and medium-term financial projections are a required part of your business plan if you want serious attention from investors.

The financial section of your business plan should include a sales forecast , expenses budget , cash flow statement , balance sheet , and a profit and loss statement . Be sure to follow the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board , a private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.

Sales Forecast

As a startup business, you do not have past results to review, which can make forecasting sales difficult. It can be done, though, if you have a good understanding of the market you are entering and industry trends as a whole. In fact, sales forecasts based on a solid understanding of industry and market trends will show potential investors that you've done your homework and your forecast is more than just guesswork.

In practical terms, your forecast should be broken down by monthly sales with entries showing which units are being sold, their price points, and how many you expect to sell. When getting into the second year of your business plan and beyond, it's acceptable to reduce the forecast to quarterly sales. In fact, that's the case for most items in your business plan.

Expenses Budget

What you're selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It's a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others. Some costs likely will vary month by month such as advertising or seasonal sales help.

Cash Flow Statement

As with your sales forecast, cash flow statements for a startup require doing some homework since you do not have historical data to use as a reference. This statement, in short, breaks down how much cash is coming into your business on a monthly basis vs. how much is going out. By using your sales forecasts and your expenses budget, you can estimate your cash flow intelligently.

Keep in mind that revenue often will trail sales, depending on the type of business you are operating. For example, if you have contracts with clients, they may not be paying for items they purchase until the month following delivery. Some clients may carry balances 60 or 90 days beyond delivery. You need to account for this lag when calculating exactly when you expect to see your revenue.

Profit and Loss Statement

Your P&L statement should take the information from your sales projections, expenses budget, and cash flow statement to project how much you expect in profits or losses through the three years included in your business plan. You should have a figure for each individual year as well as a figure for the full three-year period.

Balance Sheet

You provide a breakdown of all of your assets and liabilities in the balances sheet. Many of these assets and liabilities are items that go beyond monthly sales and expenses. For example, any property, equipment, or unsold inventory you own is an asset with a value that can be assigned to it. The same goes for outstanding invoices owed to you that have not been paid. Even though you don't have the cash in hand, you can count those invoices as assets. The amount you owe on a business loan or the amount you owe others on invoices you've not paid would count as liabilities. The balance is the difference between the value of everything you own vs. the value of everything you owe.

Break-Even Projection

If you've done a good job projecting your sales and expenses and inputting the numbers into a spreadsheet, you should be able to identify a date when your business breaks even—in other words, the date when you become profitable, with more money coming in than going out. As a startup business, this is not expected to happen overnight, but potential investors want to see that you have a date in mind and that you can support that projection with the numbers you've supplied in the financial section of your business plan.

Additional Tips

When putting together your financial projections, keep some general tips in mind:

• Get comfortable with spreadsheet software if you aren't already. It is the starting point for all financial projections and offers flexibility, allowing you to quickly change assumptions or weigh alternative scenarios. Microsoft Excel is the most common, and chances are you already have it on your computer. You can also buy special software packages to help with financial projections.
• Prepare a five-year projection . Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict. However, have the projection available in case an investor asks for it.
• Offer two scenarios only . Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad medium-case scenarios. They likely will just cause confusion.
• Be reasonable and clear . As mentioned before, financial forecasting is as much art as science. You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, expect investors to see red flags.

Assumptions: Understanding Their Role in Financial Analysis

✅ All InspiredEconomist articles and guides have been fact-checked and reviewed for accuracy. Please refer to our editorial policy for additional information.

Assumptions Definition

Assumptions in finance refer to the pre-determined conditions or principles that analysts or financial models operate under, typically involving factors like market trends, interest rates, or business growth rates, that cannot be definitively predicted. They provide a foundational basis for hypothetical or predictive scenarios, allowing for strategic planning despite future uncertainties.

Role of Assumptions in Financial Analysis

Assumptions are deeply interwoven with the process of financial analysis. They allow analysts to establish a structured and rational basis for their decision-making processes.

Assessing Future Revenue Growth

When it comes to predicting future revenue growth, assumptions come into play. Analysts may base their projections on current sales, industry trends, competitive landscape, economic indicators, and more. For example, if a company is growing its customer base quickly, an analyst may assume a similar speed of growth in the foreseeable future. Such an assumption needs careful scrutiny as overly optimistic revenue growth forecasts can paint an inaccurate picture of a company's future financial health.

Determining Profit Margins

Assumptions also have a crucial role in determining profit margins. Analysts need to make educated guesses about factors affecting both costs and revenues. These can include unit prices of goods sold, the scale of production, operating efficiency, and market competition.

Say an analyst assumes that a company can maintain its cost efficiency due to its successful adoption of technological advancements. This assumption will lead to a higher forecast of profit margins. However, it's essential to keep in mind the possible risks, such as potential tech disruptions or higher maintenance costs that may affect these assumed efficiencies.

Estimating Cost of Capital

For the cost of capital estimates, assumptions provide a platform to anticipate variables like interest rates, credit risks, and capital structure. For instance, an analyst may make the assumption that the interest rates will remain stable in the next few years based on the present economic conditions.

Such an assumption, while plausible, carries a risk associated with unexpected monetary policy changes. Therefore, financial analysts often use sensitivity analysis to evaluate how changes in these assumptions could impact their cost of capital projections, making sure they’re continually refining and improving their forecasts.

In essence, assumptions are an inherent part of financial analysis. Their role is indispensable in forecasting and analysis but they must be sensibly chosen, conservatively estimated, and meticulously reviewed. This will help avoid misconceived perceptions of a company's financial future and ensure more accurate and reliable financial predictions and decisions.

Assumptions in Financial Modelling

Assumptions play an essential role in financial modelling as they lay the foundation for all financial forecasts and analyses.

The Importance of Assumptions in Financial Modelling

Assumptions provide the very basis from which all financial modelling springs. They are the essential estimates and beliefs about future conditions that are then used to generate the model. These could include details such as future income growth, inflation rates, changes in market conditions, and more.

These assumptions help create a model that shows how different variables might affect an investment or a company’s financial performance. In this way, they form the underpinning upon which key financial decisions are made.

The Pitfalls of Overly Optimistic or Pessimistic Assumptions

While assumptions are vital, they also hold a degree of uncertainty and risk. If they are overly optimistic or pessimistic, they can greatly skew the results of a financial model.

For instance, if revenue growth assumptions are too optimistic, the financial model might overestimate the company's future profits. This can lead to overly optimistic investment decisions, which could ultimately result in financial loss.

Conversely, if the assumptions are too pessimistic, the model might underestimate company performance, potentially leading to lost opportunities for growth and investment.

It's therefore critical to balance assumptions, being neither too optimistic nor too pessimistic. Assumptions in financial modelling should be based on solid research and a clear understanding of the market and economic conditions to as great a degree as possible.

Recognising the inherent uncertainty in any assumption and working in a degree of flexibility into the financial model can also help prevent the pitfalls associated with overly optimistic or pessimistic assumptions.

Types of Assumptions

Assumptions are critical in the world of finance as they provide a framework for forecasting and decision-making. There are several distinct types of assumptions that might be made in finance which can be broadly categorized as operating assumptions, market assumptions, and financial assumptions.

Operating Assumptions

Operating assumptions often relate to the internal workings of a company or institution, including its productivity, efficiency, and costs. These might involve things like potential changes in production volume, cost of goods sold (COGS), selling, general and administrative expenses (SG&A), or changes in staffing and resources.

Some common examples of operating assumptions could include:

• Expecting an increase in efficiency due to a new technology implementation
• Forecasting a decrease in COGS due to new suppliers

Market Assumptions

Market assumptions tend to focus on the conditions and characteristics of the wider market or industry in which an entity operates. These can include elements like market growth, competition, regulatory changes, or technological advancements that might impact an organization.

Examples of market assumptions could be:

• Forecasting a specific rate of consumer demand growth
• Expecting an increase in market share due to a competitive advantage

Financial Assumptions

Financial assumptions are typically related to expected changes in various financial indicators and parameters. These could include assumptions about interest rates, exchange rates, inflation, tax rates, return on investment (ROI), or equity return rates.

Examples of financial assumptions might be:

• Expecting interest rates to rise based on central bank guidance
• Anticipating inflation to increase based on economic predictors

Each type of assumption plays its own role in shaping strategic forecasts and decisions. However, all assumptions must be handled prudently as inaccurate or unrealistic assumptions can lead to improper planning and unexpected outcomes. Reviewing and updating assumptions regularly is a key part of good financial management.

Assumptions in Decision-Making Process

Underlying every financial decision in an organization are key assumptions. These assumptions, whether explicit or implicit, exert significant influence on the strategic planning process, risk management, and operational efficiency.

Impact on Strategic Planning

Assumptions represent the beliefs about the external economic environment, future trends, and internal capabilities. These beliefs are then utilized to make projections about future performance, which in turn influence an organization's strategic planning.

Suppose a company assumes its product appeals to younger generations, so it develops a five-year strategic plan focused exclusively on digital marketing and product innovation targeting this customer demographic. Here, the assumption directly guides the resource allocation and strategy formulation.

Role in Risk Management

Risk management is fundamentally tied to assumptions. Explicit assumptions about risk factors are baked into risk models, shaping predictions about potential exposure and the overall management strategy.

For instance, an insurance company's pricing of policies is inextricably linked to their assumptions about policy client behavior or an assumed rate of natural disasters. The company's degree of financial risk is therefore dependent on the precision of these assumptions. If the assumptions are off-target, it could result in risk assessment errors and lead to significant financial losses.

Contribution to Operational Efficiency

Assumptions also frame an organization's operational efficiency – the day-to-day activities that keep the business running.

In the manufacturing industry, the assumption of steady raw material supply could lead to cost-saving bulk procurement. However, if the supply is disrupted, this could lead to inefficiencies, emphasizing the significance of correct assumptions in maintaining efficient operations.

In conclusion, assumptions, by their very nature, are unavoidable as they offer a simplified representation of complex reality. While they help expedite the decision-making process, it's crucial that assumptions are regularly evaluated and adjusted as needed to ensure they continue to serve their valuable role in financial decision making.

Implications of Incorrect Assumptions

Assumptions form the backbone of financial forecasting. If these assumptions aren't accurate, the forecasts built upon them will likely be inaccurate as well. This can lead to a number of negative consequences.

Inaccurate Financial Forecasting

When assumptions are incorrect, financial forecasts, which rely heavily on these assumptions, could be extensively inaccurate. This might result in significant discrepancies between forecasted and actual results. For instance, if revenue growth is overestimated due to optimistic sales volume assumptions, a company might prepare for an increase in production that never materializes, leading to excessive inventory or unused capacity.

Incorrect assumptions can also undermine the reliability of projections for expenses or investment returns, affecting profitability forecasts. Given these high stakes, maintaining sound and reasonable assumptions is crucial to ensuring the accuracy of your financial forecast.

Poor Decision Making

Financial assumptions influence strategic planning and decision making in businesses. Consequently, when these assumptions are off the mark, they can lead to poor decision-making, which in turn can significantly hinder the achievement of strategic goals.

For instance, if a company's assumption about market demand for its new product is excessively optimistic, it may decide to invest heavily in production and marketing. If the demand turns out to be lower than anticipated, these investments could become a financial burden, putting the company's financial health at risk.

Potential Financial Loss or Regulatory Non-compliance

Incorrect assumptions can also lead to substantial financial losses. This is particularly true in cases where financial decisions, such as investments, are based on these faulty assumptions. If, for instance, a company's investment in a new product line is based on an overestimation of its viability, the financial implications could be catastrophic if the product fails.

Moreover, there are regulatory bodies with strict requirements regarding financial assumptions. Inaccurate or overly optimistic assumptions might be considered deceptive or manipulative, which can lead to regulatory non-compliance. Non-compliance can result in penalties or other legal consequences for a company, further stressing the importance of making accurate and reasonable assumptions in financial forecasting.

The impact of incorrect assumptions in finance can be far-reaching, influencing everything from daily operations to strategic directions. Hence, it is crucial to ensure that the assumptions being used are as accurate and realistic as possible.

Role of Assumptions in CSR and Sustainability Reporting

Assumptions play a crucial role in the creation of predictive models for sustainable practices and consequent impacts on Corporate Social Responsibility (CSR) performance metrics. These predictive models are most often based on historical data and trend analysis.

Use of Assumptions in Predictive Models

In the realm of CSR and sustainability reporting, assumptions are used to simplify complex real-world scenarios into models that can be mathematically or statistically evaluated. For instance, a company might assume a steady rate of growth in renewable energy use based on past trends. This assumption can then be used to predict future energy use and influence the company's CSR strategies.

Impact on CSR Performance Metrics

The use of assumptions also directly impacts the analysis and interpretation of CSR performance metrics. Assumptions can become the basis for key performance indicators (KPIs) that measure the company's success in implementing sustainable practices. For example, an organization might make an assumption about the carbon emissions reduction resulting from a proposed green initiative. This assumption could then play a significant role in determining whether the project meets the company's CSR goals or not.

By using assumptions, companies can build a more structured approach towards sustainability and CSR reporting. They allow for predictive analysis, aid strategic planning, and help clarify the potential impact of various sustainable practices on the organization's CSR performance. However, it's also critical for companies to remember that assumptions are just that – assumptions. They should be regularly reviewed, and models adjusted as necessary, to ensure an accurate and fair representation of the company's sustainability and CSR performance.

Addressing Assumptions: Techniques and Methods

Financial analysis is built on a variety of assumptions, such as projected revenue, cost estimates, growth rates, among others. Establishing the basis of these assumptions and then challenging and validating them is crucial. Two popular methods include sensitivity analysis and scenario analysis.

Sensitivity Analysis

Sensitivity analysis is about exploring how changes in one variable impact the output of a financial model. It allows analysts to assess the risks associated with different parts of a business strategy or economic forecast by testing various 'what if' scenarios. For instance, what if sales income reduces by a certain percentage? How did this impact the firm's net profits?

To undertake a sensitivity analysis, you'd keep all other inputs constant while varying the one you're investigating. The outcome would give a clear perspective on the robustness of your financial model and how susceptible it is to changes in a particular variable.

Scenario Analysis

Counter to sensitivity analysis, scenario analysis considers the impact of changes to multiple variables at once. In other words, it evaluates the combined effects of changing multiple inputs on outcomes. An example scenario could be an increase in both revenue and growth rate and a reduction in expenditure, thereby simulating a best-case scenario.

Building a scenario requires not only varying the inputs but also assigning probabilities to each one. These probability-weighted outcomes provide a more comprehensive view of potential risks and rewards.

Both sensitivity and scenario analyses offer valuable insights but remember these forms of analyses are strong as the assumptions they're built on. Therefore, it's essential to continuously review and refine these assumptions for any successful financial modeling.

Assumptions vs Facts: Striking the Right Balance

In business, both assumptions and facts play a crucial role, each contributing uniquely to the growth and decision-making process. Striking the right balance between these two elements ensures informed, comprehensive, and realistic decision-making.

Incorporating Assumptions

Assumptions act as the necessary bridge connecting current realities with future potentials. Striking a balance here means not leaning excessively on assumptions to the point they distort the reality of the situation. There's an inherent risk in overreliance, as assumptions are essentially educated guesses.

For instance, a company looking towards market expansion might assume that their product would be readily accepted in a new location, perhaps based on previous positive experiences in similar markets. While this assumption could speed up decision-making, it's still a significant risk without actual data or facts from the target market location.

The Role of Facts

Meanwhile, facts serve as the main pillars supporting general operational decisions within the business. These are the verifiable pieces of information reflecting the truth about current circumstances or trends of a specific market. The downside here is that relying solely on facts might slow down dynamism in decision-making, as leaders may wait for concrete data before making an important decision. The world of business is certainly not this predictable, and not all scenarios would provide the luxury of time.

For example, when deciding on corporate strategy, perhaps a new go-to-market approach, companies might want to rely on proven successful methods. This fact-based decision is reliable but may not adequately consider future uncertainties or unique challenges within the new market.

Balancing Assumptions and Facts

Hence, effectively planning and executing business decisions requires a thoughtful balance between assumptions and facts. Leaders must be both imaginative and pragmatic. A mix of both allows for adaptive and innovative strategies that maintain a grounding in reality. By utilizing assumptions, a company can strategize for multiple outcomes- including potential pitfalls or challenges.

Meanwhile, by using facts, companies can create plans based on verifiable information, resulting in strategies less at risk to sudden market changes or unforeseen events. This blend of assumptions and facts can provide an edge over competitors and prepare the company for the complexity and uncertainty of business operations.

Overall, finding this balance is not a one-size-fits-all process. It requires careful consideration, iterative learning, and flexibility. In financial planning, like budgeting, this would mean relying on hard data about revenues and costs but also making assumptions about expected growth or potential new expense categories.

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• Business Planning

Business Plan Financial Projections

Written by Dave Lavinsky

Financial projections are forecasted analyses of your business’ future that include income statements, balance sheets and cash flow statements. We have found them to be an crucial part of your business plan for the following reasons:

• They can help prove or disprove the viability of your business idea. For example, if your initial projections show your company will never make a sizable profit, your venture might not be feasible. Or, in such a case, you might figure out ways to raise prices, enter new markets, or streamline operations to make it profitable. 
• Financial projections give investors and lenders an idea of how well your business is likely to do in the future. They can give lenders the confidence that you’ll be able to comfortably repay their loan with interest. And for equity investors, your projections can give them faith that you’ll earn them a solid return on investment. In both cases, your projections can help you secure the funding you need to launch or grow your business.
• Financial projections help you track your progress over time and ensure your business is on track to meet its goals. For example, if your financial projections show you should generate $500,000 in sales during the year, but you are not on track to accomplish that, you’ll know you need to take corrective action to achieve your goal.

Below you’ll learn more about the key components of financial projections and how to complete and include them in your business plan.

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes. There are three main financial statements that you will need to include in your business plan financial projections:

1. Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

• Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
• Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

Sample Income Statement

2. cash flow statement & projection.

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

• The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
• It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

Sample Cash Flow Statements

3. balance sheet projection.

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

Sample Balance Sheet

How to create financial projections.

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.  

Cost Assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

Conduct a Ratio Analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

• Gross margin ratio
• Operating margin ratio
• Return on assets (ROA)
• Return on equity (ROE)

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

Create Multi-Year Financial Projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.

Business Plan Financial Projections FAQs

What is a business plan financial projection.

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

What are annual income statements? 

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

What are the necessary financial statements?

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

How do I create financial projections?

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

Plan Projections

ideas to numbers .. simple financial projections

Home > Financial Projections > Financial Projection Assumptions

Financial Projection Assumptions

The financial projections template requires a number of key business plan assumptions. Some of these financial projection assumptions such as the interest rate, and income tax rate are specific to the particular circumstances of the business, however others, such as those listed below, can be estimated using the published financial statements of other businesses.

Gross margin %

• Accounts receivable days
• Inventory days
• Accounts payable days
• Other liabilities days

Which Financial Statements to Use

When choosing financial statements to work from, the first point to note is that they must be from a similar industry to your own. For example, if you are a high volume, low margin retail business there is little value in analyzing the financial statements of a low volume, high margin manufacturing business, as the results will not be comparable.

The second point is that ideally the financial statements should be from a business of similar size to your own, or the size you intend it to be over the period of the financial projections. Unfortunately, financial statements for small startup businesses tend not to be available to the general public, so of necessity, information from much larger listed businesses might have to be used. While this is not ideal, it can provide useful initial estimates of key assumptions, which can then be adjusted to allow for the difference in scale.

Calculation of Financial Projection Assumptions Example

The calculation of each of the key financial projection assumptions is shown below using the financial statements of Apple Inc as an example.

The gross margin percentage is calculated using the following formula.

For example using the Apple Inc income statement for 2013 , the gross margin percentage is calculated as follows:

Accounts Receivable Days

The accounts receivable days is calculated using the following formula.

The formula basically takes the accounts receivable (amount outstanding from customers), and divides this by the daily revenue, to give an indication of how long it takes customers to pay their accounts.

For example using the Apple income statement 2013 for revenue, and the Apple Inc. balance sheet 2013 for accounts receivable, the accounts receivable days is calculated as follows:

Our accounts receivable days calculator is available to help perform this calculation.

Inventory Days

The inventory days is calculated using the following formula.

The formula simply takes the inventory, and divides this by the daily cost of sales, to give an indication of how many days cost of sales are held inventory. Using the Apple Inc. income statement 2013 for cost of sales, and the Apple Inc. balance sheet 2013 for inventory, the inventory days is calculated as follows:

Our inventory days calculator is available to help perform this calculation.

Accounts Payable Days

The accounts payable days is calculated using the following formula.

The formula uses the accounts payable (amount outstanding to trade suppliers) from the balance sheet, and divides this by the daily cost of sales from the income statement, to give an indication of how long it takes fro the business to pay its suppliers.

For example using the Apple Inc. income statement 2013 , and the Apple Inc. balance sheet 2013 the accounts payable days is calculated as follows:

Our accounts payable days calculator is available to help perform this calculation.

Other Liabilities Days

The other liabilities days is calculated using the formula below.

The formula basically uses the other liabilities figure, and divides this by the daily expenses (other than cost of sales), to give an indication of how long it takes to pay other liabilities.

Again, using the Apple Inc. income statement 2013 , for operating expenses, interest costs (nil), and income tax, and the Apple Inc. balance sheet 2013 for other liabilities (accrued expenses), then the other liabilities days can be calculated as follows:

Our other liabilities days calculator is available to help perform this calculation.

The process should be repeated with as many sets of financial statements as you have available, both for different companies in your industry and for different years. Eventually a pattern will form which will give you a good indication of the type of values you should be considering for these key financial projection assumptions.

The financial assumptions discussed above can be estimated from the published financial statements of other businesses. Other assumptions a startup needs to consider are listed in our post on business plan assumptions .

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.

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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?

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How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

Say goodbye to old-school excel sheets & templates

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Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

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Business Financial Plan Example: Strategies and Best Practices

Any successful endeavor begins with a robust plan – and running a prosperous business is no exception. Careful strategic planning acts as the bedrock on which companies build their future. One of the most critical aspects of this strategic planning is the creation of a detailed business financial plan. This plan serves as a guide, helping businesses navigate their way through the complex world of finance, including revenue projection, cost estimation, and capital expenditure, to name just a few elements. However, understanding what a business financial plan entails and how to implement it effectively can often be challenging. With multiple components to consider and various economic factors at play, the financial planning process may appear daunting to both new and established business owners.

This is where we come in. In this comprehensive article, we delve into the specifics of a business financial plan. We discuss its importance, the essential elements that make it up, and the steps to craft one successfully. Furthermore, we provide a practical example of a business financial plan in action, drawing upon real-world-like scenarios and strategies. By presenting the best practices and demonstrating how to employ them, we aim to equip business owners and entrepreneurs with the tools they need to create a robust, realistic, and efficient business financial plan. This in-depth guide will help you understand not only how to plan your business finances but also how to use this plan as a roadmap, leading your business towards growth, profitability, and overall financial success. Whether you're a seasoned business owner aiming to refine your financial strategies or an aspiring entrepreneur at the beginning of your journey, this article is designed to guide you through the intricacies of business financial planning and shed light on the strategies that can help your business thrive.

Understanding a Business Financial Plan

At its core, a business financial plan is a strategic blueprint that sets forth how a company will manage and navigate its financial operations, guiding the organization towards its defined fiscal objectives. It encompasses several critical aspects of a business's financial management, such as revenue projection, cost estimation, capital expenditure, cash flow management, and investment strategies.

Revenue projection is an estimate of the revenue a business expects to generate within a specific period. It's often based on market research, historical data, and educated assumptions about future market trends. Cost estimation, on the other hand, involves outlining the expenses a business anticipates incurring in its operations. Together, revenue projection and cost estimation can give a clear picture of a company's expected profitability. Capital expenditure refers to the funds a company allocates towards the purchase or maintenance of long-term assets like machinery, buildings, and equipment. Understanding capital expenditure is vital as it can significantly impact a business's operational capacity and future profitability. The cash flow management aspect of a business financial plan involves monitoring, analyzing, and optimizing the company's cash inflows and outflows. A healthy cash flow ensures that a business can meet its short-term obligations, invest in its growth, and provide a buffer for future uncertainties. Lastly, a company's investment strategies are crucial for its growth and sustainability. They might include strategies for raising capital, such as issuing shares or securing loans, or strategies for investing surplus cash, like purchasing assets or investing in market securities.

A well-developed business financial plan, therefore, doesn't just portray the company's current financial status; it also serves as a roadmap for the business's fiscal operations, enabling it to navigate towards its financial goals. The plan acts as a guide, providing insights that help business owners make informed decisions, whether they're about day-to-day operations or long-term strategic choices. In a nutshell, a business financial plan is a key tool in managing a company's financial resources effectively and strategically. It allows businesses to plan for growth, prepare for uncertainties, and strive for financial sustainability and success.

Essential Elements of a Business Financial Plan

A comprehensive financial plan contains several crucial elements, including:

• Sales Forecast : The sales forecast represents the business's projected sales revenues. It is often broken down into segments such as products, services, or regions.
• Expenses Budget : This portion of the plan outlines the anticipated costs of running the business. It includes fixed costs (rent, salaries) and variable costs (marketing, production).
• Cash Flow Statement : This statement records the cash that comes in and goes out of a business, effectively portraying its liquidity.
• Income Statements : Also known as profit and loss statements, income statements provide an overview of the business's profitability over a given period.
• Balance Sheet : This snapshot of a company's financial health shows its assets, liabilities, and equity.

Crafting a Business Financial Plan: The Steps

Developing a business financial plan requires careful analysis and planning. Here are the steps involved:

Step 1: Set Clear Financial Goals

The initial stage in crafting a robust business financial plan involves the establishment of clear, measurable financial goals. These objectives serve as your business's financial targets and compass, guiding your company's financial strategy. These goals can be short-term, such as improving quarterly sales or reducing monthly overhead costs, or they can be long-term, such as expanding the business to a new location within five years or doubling the annual revenue within three years. The goals might include specific targets such as increasing revenue by a particular percentage, reducing costs by a specific amount, or achieving a certain profit margin. Setting clear goals provides a target to aim for and allows you to measure your progress over time.

Step 2: Create a Sales Forecast

The cornerstone of any business financial plan is a robust sales forecast. This element of the plan involves predicting the sales your business will make over a given period. This estimate should be based on comprehensive market research, historical sales data, an understanding of industry trends, and the impact of any marketing or promotional activities. Consider the business's growth rate, the overall market size, and seasonal fluctuations in demand. Remember, your sales forecast directly influences the rest of your financial plan, particularly your budgets for expenses and cash flow, so it's critical to make it as accurate and realistic as possible.

Step 3: Prepare an Expense Budget

The next step involves preparing a comprehensive expense budget that covers all the costs your business is likely to incur. This includes fixed costs, such as rent or mortgage payments, salaries, insurance, and other overheads that remain relatively constant regardless of your business's level of output. It also includes variable costs, such as raw materials, inventory, marketing and advertising expenses, and other costs that fluctuate in direct proportion to the level of goods or services you produce. By understanding your expense budget, you can determine how much revenue your business needs to generate to cover costs and become profitable.

Step 4: Develop a Cash Flow Statement

One of the most crucial elements of your financial plan is the cash flow statement. This document records all the cash that enters and leaves your business, presenting a clear picture of your company's liquidity. Regularly updating your cash flow statement allows you to monitor the cash in hand and foresee any potential shortfalls. It helps you understand when cash comes into your business from sales and when cash goes out of your business due to expenses, giving you insights into your financial peaks and troughs and enabling you to manage your cash resources more effectively.

Step 5: Prepare Income Statements and Balance Sheets

Another vital part of your business financial plan includes the preparation of income statements and balance sheets. An income statement, also known as a Profit & Loss (P&L) statement, provides an overview of your business's profitability over a certain period. It subtracts the total expenses from total revenue to calculate net income, providing valuable insights into the profitability of your operations.

On the other hand, the balance sheet provides a snapshot of your company's financial health at a specific point in time. It lists your company's assets (what the company owns), liabilities (what the company owes), and equity (the owner's or shareholders' investment in the business). These documents help you understand where your business stands financially, whether it's making a profit, and how your assets, liabilities, and equity balance out.

Step 6: Revise Your Plan Regularly

It's important to remember that a financial plan is not a static document, but rather a living, evolving roadmap that should adapt to your business's changing circumstances and market conditions. As such, regular reviews and updates are crucial. By continually revisiting and revising your plan, you can ensure it remains accurate, relevant, and effective. You can adjust your forecasts as needed, respond to changes in the business environment, and stay on track towards achieving your financial goals. By doing so, you're not only keeping your business financially healthy but also setting the stage for sustained growth and success.

Business Financial Plan Example: Joe’s Coffee Shop

Now, let's look at a practical example of a financial plan for a hypothetical business, Joe’s Coffee Shop.

Sales Forecast

When constructing his sales forecast, Joe takes into account several significant factors. He reviews his historical sales data, identifies and understands current market trends, and evaluates the impact of any upcoming promotional events. With his coffee shop located in a bustling area, Joe expects to sell approximately 200 cups of coffee daily. Each cup is priced at $5, which gives him a daily sales prediction of $1000. Multiplying this figure by 365 (days in a year), his forecast for Year 1 is an annual revenue of $365,000. This projection provides Joe with a financial target to aim for and serves as a foundation for his further financial planning. It is worth noting that Joe's sales forecast may need adjustments throughout the year based on actual performance and changes in the market or business environment.

Expenses Budget

To run his coffee shop smoothly, Joe has identified several fixed and variable costs he'll need to budget for. His fixed costs, which are costs that will not change regardless of his coffee shop's sales volume, include rent, which is $2000 per month, salaries for his employees, which total $8000 per month, and utilities like electricity and water, which add up to about $500 per month.

In addition to these fixed costs, Joe also has variable costs to consider. These are costs that fluctuate depending on his sales volume and include the price of coffee beans, milk, sugar, and pastries, which he sells alongside his coffee. After a careful review of all these expenses, Joe estimates that his total annual expenses will be around $145,000. This comprehensive expense budget provides a clearer picture of how much Joe needs to earn in sales to cover his costs and achieve profitability.

Cash Flow Statement

With a clear understanding of his expected sales revenue and expenses, Joe can now proceed to develop a cash flow statement. This statement provides a comprehensive overview of all the cash inflows and outflows within his business. When Joe opened his coffee shop, he invested an initial capital of $50,000. He expects that the monthly cash inflows from sales will be about $30,417 (which is his annual revenue of $365,000 divided by 12), and his monthly cash outflows for expenses will amount to approximately $12,083 (his total annual expenses of $145,000 divided by 12). The cash flow statement gives Joe insights into his business's liquidity. It helps him track when and where his cash is coming from and where it is going. This understanding can assist him in managing his cash resources effectively and ensure he has sufficient cash to meet his business's operational needs and financial obligations.

Income Statement and Balance Sheet

With the figures from his sales forecast, expense budget, and cash flow statement, Joe can prepare his income statement and balance sheet. The income statement, or Profit & Loss (P&L) statement, reveals the profitability of Joe's coffee shop. It calculates the net profit by subtracting the total expenses from total sales revenue. In Joe's case, this means his net profit for Year 1 is expected to be $220,000 ($365,000 in revenue minus $145,000 in expenses).

The balance sheet, on the other hand, provides a snapshot of the coffee shop's financial position at a specific point in time. It includes Joe's initial capital investment of $50,000, his assets like coffee machines, furniture, and inventory, and his liabilities, which might include any loans he took to start the business and accounts payable.

The income statement and balance sheet not only reflect the financial health of Joe's coffee shop but also serve as essential tools for making informed business decisions and strategies. By continually monitoring and updating these statements, Joe can keep his finger on the pulse of his business's financial performance and make necessary adjustments to ensure sustained profitability and growth.

Best Practices in Business Financial Planning

While crafting a business financial plan, consider the following best practices:

• Realistic Projections : Ensure your forecasts are realistic, based on solid data and reasonable assumptions.
• Scenario Planning : Plan for best-case, worst-case, and most likely scenarios. This will help you prepare for different eventualities.
• Regular Reviews : Regularly review and update your plan to reflect changes in business conditions.
• Seek Professional Help : If you are unfamiliar with financial planning, consider seeking assistance from a financial consultant.

The importance of a meticulously prepared business financial plan cannot be overstated. It forms the backbone of any successful business, steering it towards a secure financial future. Creating a solid financial plan requires a blend of careful analysis, precise forecasting, clear and measurable goal setting, prudent budgeting, and efficient cash flow management. The process may seem overwhelming at first, especially for budding entrepreneurs. However, it's crucial to understand that financial planning is not an event, but rather an ongoing process. This process involves constant monitoring, evaluation, and continuous updating of the financial plan as the business grows and market conditions change.

The strategies and best practices outlined in this article offer an invaluable framework for any entrepreneur or business owner embarking on the journey of creating a financial plan. It provides insights into essential elements such as setting clear financial goals, creating a sales forecast, preparing an expense budget, developing a cash flow statement, and preparing income statements and balance sheets. Moreover, the example of Joe and his coffee shop gives a practical, real-world illustration of how these elements come together to form a coherent and effective financial plan. This example demonstrates how a robust financial plan can help manage resources more efficiently, make better-informed decisions, and ultimately lead to financial success.

Remember, every grand journey begins with a single step. In the realm of business, this step is creating a well-crafted, comprehensive, and realistic business financial plan. By following the guidelines and practices suggested in this article, you are laying the foundation for financial stability, profitability, and long-term success for your business. Start your journey today, and let the road to financial success unfold.

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Free Assumption Templates: Project, Business and Financial

By Kate Eby | May 25, 2022

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We’ve collected free, downloadable assumption templates for project, business, and financial management needs. They can help you identify and track project constraints and assumptions during strategy development and project planning.

Included on this page, you will find a project assumptions and constraints template , an assumptions log template , an assumptions mapping template , and more.

Project Assumptions and Constraints Template

Download Project Assumptions and Constraints Template Microsoft Excel | Microsoft Word

This assumptions and constraints template enables you to enter and track all objectives, assumptions, and constraints for your project. Each section comes pre-filled with explanatory text to help you correctly identify deliverables, tasks, scope, assumptions, constraints, and estimated time for project completion. The template is completely customizable and includes an approvals section for documenting signatures from key stakeholders.

For more project planning templates and resources, see this extensive collection of project scope management tools .

Financial Assumption Template

Download Financial Assumption Template Microsoft Excel | Microsoft Word  

Use this financial assumption template to organize and visualize your financial projections on a yearly or monthly basis. Customize the items in the Particulars column to reflect your anticipated income sources and costs, and enter projected expenses and revenue for each month or year. This template includes a column that factors in financial assumptions, such as depreciation, financing costs, and income tax, so that your final financial projection is as accurate as possible.

For more financial planning resources, see this collection of business financial plan templates for more free, downloadable forms.

Assumption Log Template

Download Assumption Log Template Microsoft Excel | Microsoft Word  

Record and track project assumptions through the entire lifecycle of your project with this assumption log template. Enter all assumptions into the log, and record the date, validation task assignments, and comments. By doing so, you can keep tabs on all aspects of your project as it develops. 

See this comprehensive collection of project management plan templates to find the right project planning template for your project or business.

Sales Assumption Template

Download Sales Assumption Template Microsoft Excel | Smartsheet

Use this sales assumption template to track sales projections and assumptions while planning your monthly sales goals. The template includes 12 columns for recording monthly projections, as well as customizable rows where you can record projections for different product categories. The template also allows you to compare year-over-year performance against projections, which will help improve the accuracy of financial planning over time.

Assumptions Mapping Template

Download Assumptions Mapping Template Microsoft Word | Microsoft PowerPoint

An assumptions mapping template enables you to visualize, categorize, and communicate your assumptions clearly. The template divides assumptions into three, color-coded categories: desirable, feasible, and viable. On the second page, you will find a graph that enables you to plot assumptions based on their relative importance and certainty. Map each color-coded assumption onto the graph to create a dynamic visualization of your project assumptions.

For more resources and guidance on the project initiation process, see this comprehensive guide to project initiation .

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