Read on for some interesting tips on business planning.
Tip #1: Making Financial Projections too Aggressive
Tip #2: Defining the Market Size for a Company too Broadly
More tips to come next month...
Many investors skip straight to the financial section of the business plan. It is critical that the 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 projection communicate operational maturity and credibility. By accessing and basing projections on the financial performance of public companies in their marketplace, ventures can prove that their assumptions and projections are attainable.
Defining the market size for a venture too broadly provides little or no value for the investor. For example, mentioning the size of the U.S. healthcare or global electronics markets is generally extraneous since no company could capture a meaningful percentage of either market. Rather, a more meaningful measure is the relevant market size, which equals the company's sales if it were to capture 100% of its specific niche of the market. Defining and communicating a credible relevant market size, and a plan to capture a significant share within this market is far more powerful and believable to investors.