Whether you’re getting ready to meet with investors for the first time or you’ve already spoken with investors about your business, you probably already know the importance of good forecasting for your business. Investors want to know where you see your startup in the next few months, as well as the next few years. They want to see evidence for your claims, and they want to know what kinds of steps you plan on taking to grow your business.
Inaccurate forecasting is one of the big killers when it comes to pitching a startup to investors. When an investor asks you what the future holds for your business and you can’t tell them or, worse, you tell them something wildly inaccurate, they’re going to know that you haven’t done your homework. If you can’t prove to them that you’ve foreseen obstacles, challenges, competition, and other barriers to growth, you won’t be seeing any of their start-up capital.
So how can you more accurately forecast your business’ growth and where you’ll be in the coming months and years? Follow a few simple tips.
MAKE PROJECTIONS BASED ON REAL-WORLD NUMBERS
Don’t just say that you expect to see 50% growth over the first year because you believe in your business and your product. Research similar businesses and products in your field. Look at their numbers for the first year of business, as well as other factors that may affect your growth. When you make a statement about your projected profits and growth over the first months and years of your business’ life, investors aren’t just going to say, “Okay, sounds good.” They’re going to want to know where your projections come from, so be sure to have answers to those questions.
DON’T TRY TO PROJECT TOO FAR OUT
If you haven’t launched yet, there’s a good chance that you have no idea what your business will be doing in three to five years. You may stay on track, but what happens if an industry disruptor comes out next year? What if you find a more lucrative business model? What about changes to your marketing as you further define your niche?
At this point, it’s best to make shorter, more conservative projections. It’s safe to look at the numbers today and make projections for eighteen months to two years, but don’t go beyond that timeframe just yet.
DON’T FORGET ABOUT OVERHEAD COSTS AND SCALABILITY
Have you accounted for what happens when you have to hire more employees? Do you know what kinds of overhead costs you’ll be adding as your business grows? It’s important to create a scalable business model, but you also need to know what it will cost to scale and how much that will affect profit margins.
If you do your research on what it will cost you to grow your business, and you plan for competition, disruptors, and other factors, you’ll have a good idea of what kinds of numbers will be realistic for your projection. This will help you feel more confident in determining exactly how much start-up capital you need and how long it will take to make that investment back.
If you follow this advice, you’ll have the building blocks you need to figure out more accurate forecasts for your business, and as your business grows, you’ll be able to continue to make projections months and years into the future. Give your investors this information, and they’ll be more likely to take a chance on you and give you the opportunity to grow your business like never before.