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Critical Assumptions

Financial projections (sometimes called simulations) are typically done using a spreadsheet program like Excel.

Revenue Projections and Assumptions
As noted elsewhere, revenue is the most important and the most difficult number to predict. No matter how good your research, the revenue isn’t realized until the consumer actually opens up their purse or billfold and puts the money down. The overarching risk with any business plan is that the revenue will not materialize as projected. So many factors are at play; weather, the economy, competition, fuel prices, etc. that even the most solid plans are still at the mercy of a lot of unpredictable events. What can you do to overcome these breathtaking odds?

 Debt and/or Equity Injection

Borrowed Money

A loan is money borrowed for a period of time – usually with structured monthly amortization. Once the money is paid back the loaner has no more claims on the assets. The disadvantage of debt is that it must be paid back in installments that commence the following month. Paying back principal (the initial borrowed money) and interest can seriously hamper cash flow.

Equity

Equity is ownership interest in the business. This comes from the founders input from cash and any net profits made. Equity can also come from an outside investor offering cash in exchange for a percentage ownership in the business. Entrepreneurs struggle with investors, never really knowing how much ownership to give up in exchange for the injection. It has as much to do with control as the money. The only suggestion here, without going into a long evaluation process, is to seek competent help from an experienced business attorney.

Growth Projections
A spreadsheet program like Excel allows you to easily plug in growth by applying a percentage increase each year.

Pricing Trends
It is very typical for spreadsheets to show a ratcheting up in selling prices from one year to the next. Yet, in the last few years most retailers have had a difficult time in increasing prices even as costs have risen. If you hope to be able to raise prices in the future you are going to need good market research to verify that your customers are willing to continue to purchase the volume you predict when prices increase.
You can however also dream to lower your retail price because of volume purchases of supplies and efficiency in production. Or, you may be content to keep prices the same and still lower production offering more profit. Increased profits can allow you to increase marketing efforts to attract more business.