#3 – “Our Projections Are Conservative”
Why would anyone pitch conservative projections when they write a business plan? While it is important to be realistic and have supportable assumptions for your projections it is always better to show the base case – i.e. what you will realistically make. Investors and Lenders look at hundreds of plans in any given year and this is one of the most common statements they see. Plus, they will perform their own scenario analysis on your projections to assess whether the proposal is a viable investment.
When teaching clients how to write a business plan we recommend that you do some scenario analysis yourself showing a base case, conservative case and an upside case. This shows that you have thought about the different factors that may impact your financial projections and demonstrates financial acumen. Pitching with conservative projections if you are trying to attract funding is tantamount to saying, “this is as bad as it will get.” It is much better to show what is probable, outline potential upside and demonstrate that if conditions do worsen you can maintain serviceability on your loan or can demonstrate to an equity investor what it means for their exit strategy.
#4 – “We Will Be Able To Sell In Two Years”
This may well be true if you are cultivating the next innovation about to descend upon the world, however, the general rule is that it takes time and commitment to grow a business effectively. Every business plan should have an exit strategy and investors will have their own idea about the timeframe around their exit.
Claiming the company will be scalable and saleable in a short time frame is undesirable for the following reasons:
- It is virtually impossible from a standing start
- Management are more interested in selling than growing
- It limits the investment to the “short term” status
- Dilutes confidence in the projections and strategy