The Entrepreneurs Weekly
No Result
View All Result
Wednesday, July 2, 2025
  • Login
  • Home
  • BUSINESS
  • POLITICS
  • ENTREPRENEURSHIP
  • ENTERTAINMENT
Subscribe
The Entrepreneurs Weekly
  • Home
  • BUSINESS
  • POLITICS
  • ENTREPRENEURSHIP
  • ENTERTAINMENT
No Result
View All Result
The Entrepreneurs Weekly
No Result
View All Result
Home Business

4 Things Investors Are Actually Looking For in Financial Forecasts | Entrepreneur

by Brand Post
October 30, 2023
in Business
0
4 Things Investors Are Actually Looking For in Financial Forecasts | Entrepreneur
152
SHARES
1.9k
VIEWS
Share on FacebookShare on Twitter


Opinions expressed by Entrepreneur contributors are their own.

If you’re an entrepreneur who’s looking for investment, you already know that you need more than a good business idea — you need a strong pitch that includes solid financial forecasts.

This is vitally important when seeking out the right investor as it shows them that you understand the fundamentals of your business. It also helps investors understand other key points, such as the attractiveness of your business model; the amount of capital required to meet milestones; and the valuation of the company to be applied to the current financing round.

But figuring out what to include in these forecasts can be tricky. At MaRS IAF, we see hundreds of pitches every year. This is what we want founders to know.

Related: 6 Important Factors Venture Capitalists Consider Before Investing

Include the right numbers

The most important thing in a financial forecast is an income statement that spells out your revenue, cost of goods sold and expenses. Cash flow projections are also key: Most startups are not profitable at first, so it’s important for investors to understand what kind of runway the companies are forecasting and whether they have the funding to continue operating until they achieve their goals. Include quarterly, and if necessary, monthly projections for various scenarios, as well as your plan if things go awry.

Many founders present what’s called the base case, which tends to look at the most plausible scenario when it comes to their cash flow. But we’ll often ask, what is your worst case in terms of what could go wrong? For example, what would happen if your revenue gets delayed by six months or a year? When would you run out of cash? That’s not just important information to have, it’s also a good reference point for us to see how founders evaluate and plan for risk. Often the difference between success and failure is in the execution, so we want to know how they’ll handle it when things don’t go to plan.

Learn the economics of your industry sector — and don’t give overblown projections

Different types of industries have different margins and cost profiles, which founders must be aware of if they’re going to generate accurate and reasonable financial projections. For example, software and SAAS companies could have gross margins of up to 90% because their cost of goods sold is very low. On the hardware side, it’s closer to 50% because of manufacturing costs. The traditional automotive industry has typical net income profit margins between 3% and 5%.

To fund all their R&D and other expenses, they need huge revenue volumes and the associated economies of scale. If a founder is projecting profit that doesn’t mirror the reality of their industry, it will ruin their credibility because it’ll indicate they haven’t done their homework or don’t understand their business, which can make an investor wonder whether they can trust any of the company’s projections.

Related: Here’s What’s Brewing in the Minds of Startup Investors

Have a plan — but be adaptable, too

Founders come up with scenarios based on any number of assumptions that differ from their base case — including the timing of revenue, margins and expenses — so we don’t expect them to have a scenario for every single parameter. But be prepared, because potential investors may ask for more financial analysis.

It’s also a good idea to include your contingency plans in your financial projections. So, if things go in a negative direction, what changes will you make to ensure your survival? That could look like hiring people on a contract basis rather than bringing them on full-time or planning to cut core staff. But many entrepreneurs will save this as a last resort because cutting too deep can lead to a vicious circle where you cannot deliver on promises that you’ve made to customers. Oftentimes, part-time employees have other sources of income and it’s less painful to disengage with those than with full-time employees. It may also make sense to hire a part-time or fractional CFO instead of bringing on a high-priced full-timer right away.

Use a model that makes sense for the stage of your business

In the first and second years of operations, companies have a reasonably good idea of what they need to do to meet their milestones and what resources they need to get there. For example, if they need to develop a new feature, they can likely estimate how many engineers and how much time to dedicate to the project.

Similarly, it should be fairly easy to calculate how much that would cost and how much revenue they need to generate in order to fund that. That’s how you build an income statement using “bottom-up” projections. But any further out, it becomes difficult to estimate exactly how many engineers the company will have and how much revenue it’ll generate. At that point, it’s time to switch to “top-down” models, which use typical industry margins, cost structure and revenue per employee to generate a projected income statement.

Related: Everything You Need to Know to Pitch an Investor

How to choose the right investor

Not every startup gets to choose their investors — sometimes, it’s whoever will give you money. But, ideally, founders should look for investors who have some important characteristics, and domain expertise is a big one. That’s their track record of investing in that industry, which means they will more easily understand the business case and the value proposition.

It’s also wise to seek out a firm that can add value after the investment. Look for firms that can provide the resources, skills and networks to validate their ideas and bring products and services to market. I like to call this the “virtuous circle” of venture capital. If a venture capital firm has a good reputation, chances are the companies it invests in will attract better opportunities and therefore see better outcomes. Contacts in the industry are also important because that means your investor can support you in the long run by helping open doors with potential customers and partners, which will help the startup become more successful.

Founders should also do their research to find out what companies the VC may have already invested in. If they’ve already begun a relationship with a direct competitor, that can present another challenge.

The bottom line

There are a lot of details to line up and work through, so make sure you are fully prepared to talk confidently — and honestly — about your business plan. If you want to attract an investor who is committed to your company’s growth, you need to first invest the time to ensure your numbers add up.



Source link

Tags: Business ModelBusiness ModelsBusiness PlansBuying / Investing in BusinessentrepreneurFinancefinancialForecastsFundraisingInvestorsMoney & FinancePitching InvestorsStarting a BusinessVenture Capital

Related Posts

AI Startup TML From Ex-OpenAI Exec Mira Murati Pays 0,000 | Entrepreneur
Business

AI Startup TML From Ex-OpenAI Exec Mira Murati Pays $500,000 | Entrepreneur

July 1, 2025
Why Your Finance Team Needs an AI Strategy, Now | Entrepreneur
Business

Why Your Finance Team Needs an AI Strategy, Now | Entrepreneur

July 1, 2025
He Went From 1K in Debt to Teaching Others How to Succeed | Entrepreneur
Business

He Went From $471K in Debt to Teaching Others How to Succeed | Entrepreneur

July 1, 2025
  • Trending
  • Comments
  • Latest
Meet Amir Kenzo: A Well Known Musical Artist From Iran.

Meet Amir Kenzo: A Well Known Musical Artist From Iran.

August 21, 2022
Behind the Glamour: Bella Davis Opens Up About Overcoming Adversity in Modeling

Behind the Glamour: Bella Davis Opens Up About Overcoming Adversity in Modeling

April 20, 2024
Dr. Donya Ball: Pioneering Leadership Solutions for Tomorrow’s Challenges

Dr. Donya Ball: Pioneering Leadership Solutions for Tomorrow’s Challenges

May 10, 2024
Nasiyr Bey’s Journey from Brooklyn to Charlotte: The Entrepreneurial Path to Owning a Successful Cigar Lounge

Nasiyr Bey’s Journey from Brooklyn to Charlotte: The Entrepreneurial Path to Owning a Successful Cigar Lounge

August 8, 2024
Augmented.City Startup Developers Appeal To US Politicians With An Open Letter

Augmented.City Startup Developers Appeal To US Politicians With An Open Letter

0
U.S. High Court Snubs Challenge To State And Local Tax Deduction Cap

U.S. High Court Snubs Challenge To State And Local Tax Deduction Cap

0
GOP Lawmaker Blames Biden For Russia-Ukraine War: Putin ‘Could never have Invaded’

GOP Lawmaker Blames Biden For Russia-Ukraine War: Putin ‘Could never have Invaded’

0
Brad Winget’s Tips and Tricks on Having a Career in Real Estate

Brad Winget’s Tips and Tricks on Having a Career in Real Estate

0
AI Startup TML From Ex-OpenAI Exec Mira Murati Pays 0,000 | Entrepreneur

AI Startup TML From Ex-OpenAI Exec Mira Murati Pays $500,000 | Entrepreneur

July 1, 2025
Why Your Finance Team Needs an AI Strategy, Now | Entrepreneur

Why Your Finance Team Needs an AI Strategy, Now | Entrepreneur

July 1, 2025
He Went From 1K in Debt to Teaching Others How to Succeed | Entrepreneur

He Went From $471K in Debt to Teaching Others How to Succeed | Entrepreneur

July 1, 2025
How One Founder Is Rethinking Supplements With David Beckham | Entrepreneur

How One Founder Is Rethinking Supplements With David Beckham | Entrepreneur

July 1, 2025

The EW prides itself on assembling a proficient and dedicated team comprising seasoned journalists and editors. This collective commitment drives us to provide our esteemed readership with nothing short of the most comprehensive, accurate, and captivating news coverage available.

Transcending the bounds of Chicago to encompass a broader scope, we ensure that our audience remains well-informed and engaged with the latest developments, both locally and beyond.

NEWS

  • Business
  • Politics
  • Entrepreneurship
  • Entertainment
Instagram Facebook

© 2024 Entrepreneurs Weekly.  All Rights Reserved.

  • About Us
  • Advertise
  • Contact Us
No Result
View All Result
  • ENTREPRENEURSHIP
  • ENTERTAINMENT
  • POLITICS
  • BUSINESS
  • CONTACT US
  • ADVERTISEMENT

Copyright © 2024 - The Entrepreneurs Weekly

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In