Following is guest-post #3 by David Kirk:I’ve been asked on dozens of occasions to explain what I look for in the financial projections of a business plan. It may be useful to explain here, hoping that it can avoid some angst amongst you entrepreneurs out there. However, I have to add a big caveats here, since I am certain this will contradict may things your be “taught”, this is, after all, only my opinion. To start with just a few bullets:
- Five year financials please. Really, I don’t expect an exit after three, and I’d sooner take another couple of years and get a better exit value. And, the revenue in Year-5 is the definition of the company size, not the sum of all years revenue.
- I don’t need to see monthly numbers. That’s confusing accuracy with precision. Yearly is fine.
- I always calculate two sets of ratios; Year/Year growth, and the major accounting categories as a percentage of revenue. The major accounting categories are; COGS and hence gross margin (only if hardware is involved – PLEASE its mostly useless for software), cost of sales, marketing, R&D, G&A and EBITDA). It really helps if these are in the financials. It’ll save me calculating them.
- Don’t really care about the balance sheet unless there’s something on there I need to know about (e.g. some convoluted debt). Quick Books can spit this out in a very brain-dead fashion.
- Neither do I need to see Cash Flow. I’m going to assume your asking for enough funds that you will NOT be going into a negative balance?
You can find out more about David Kirk here.