S7 E36 Scenarios, Sanity Checks and Sources of Funds. How to get the most out of your financial plan with Jeremy Gray

Episode 36 Scenarios, Sanity Checks and Sources of Funds. How to get the most out of your financial plan.

The best-laid plans of mice and men often go awry Robert Burns

Your plan is finalized, as you have used a financial planning software the numbers should tick and tie. You are ready to present to potential investors who will be blown away by your financial skills. Maybe not so fast. The plan can do more for you, if you take a little extra time. ​ Take the time to create different versions of your plan based on different assumptions. You are entrepreneur, you are naturally optimistic, you are enthusiastic about your product – how can anyone fail to see the value in what you are offering. Unfortunately, expectations and reality do not always match up. The best laid plans……… Success does not always come as early planned and sales do match up with your projections. Costs are higher than anticipated. Good staff is hard to find. Your base plan that you have prepared is your best estimate, your base case. But it is worth developing some less success scenarios. Model if sales are 5% lower, 10% lower. Your first sale is three months later than planned. Costs are higher. Maybe model cases to a level where you agree (with yourself) that the business will not be viable. This will give you an idea of how much cushion you have between your base case and going out of business. Look at your funding requirements. How much extra time could, say, an additional $100,000 in investment buy you? Do not let this exercise be just look at the downside. Model some upside cases. You maybe surprised by how much better your business looks if sales are just 10% higher than forecast. Once your overheads are covered then the margin on those additional sales drops straight to the bottom line. It can be great fun to model upsides and may motivate you to go that extra mile to get those additional sales. Dream about that house, boat, car whatever you want, that those extra sales can deliver. Hope for the best and plan for the worst is a common expression. But as an entrepreneur you work towards the best and prepare for the worst. Take some time to perform a sanity check on your financial model. Does it really make sense? There can be nothing worse than have a potential investor point our a flaw or inconsistency in your plan. Take a look for the following: Does your financial model tie to your business plan? Are they consistent? Can you support your revenue projections if challenged? And you will be challenged. Are all funding needs adequately explained? If you are planning to buy equipment have some quotes to back up numbers, similar of leasing offices etc. Is the basis for all your assumptions clearly articulated and supported? Do you staffing levels make sense? $10 million in revenue with 3 sales personnel may not seem credible. Do you have the ability to hire, train and manage the staff needed? If growing rapidly this can be challenging Missing costs. Spotting a negative or something missing can be difficult. Scrutinize your costs assumptions to ensure everything has been included. Do not forget working capital. Your plan gives you the credibility to seek funding should you finance with debt or by investors. Debt has several advantages You retain 100% control of your company Interest is tax deductible Encourages discipline on the management team as those repayments have to be made on time. But bank financing can be difficult to obtain without a track record and collateral. Some suppliers for high cost items may provide funding towards the purchase. Equity financing is more common but You will need to give away part of your company Investors may want a say in the way the business is run. And it may not match your plans. You could ousted from your own company. It has happened. On the positive side there are no loan repayments to be made, and if your successful additional funding could be available faster than going back to your bank.