Critical Assumptions – Growth
With a spreadsheet is very easy to increase sales by 10% every year, just because that seems to be common practice. While it may be easy to do on a spreadsheet doesn’t mean that there is any logic to this process in the real world. You may grow a lot faster than that, slower, or maintain the same output. You have to prove your growth assumptions as clearly as all the other revenue and expense estimates. Growth typically comes from additional marketing. Your business plan and financial projections should be in sync. Your plans for growth and expansion in the business plan should show the cash flow necessary to spend more on marketing, sales staff, travel, or any of the other things needed on the spreadsheet estimates. Growth, especially rapid growth taxes the managerial capabilities of the founders and stretches cash flow. Your investors could be impressed with your growth on one hand, but be skeptical of your ability to finance and control it on the other.
Consumer Demand Assumptions
When you project growth in the business you also have to link this to research that indicates that the consumer is increasing demand as well. Does this sound like a daunting task? Remember you didn’t get into this business from the start to project failure. Your initial marketing research indicated that the market was growing and that you could secure a viable percentage of that growth. It was a key ingredient in your business plan, and now it must be a logical assumption in your financial projections. Again, keeping the business plan assumptions and the financial projections in sync is important for a consistent plan.
Global Production Assumptions
It’s well known that we live a truly global economy. To that end, we have to be as concerned with global competitors as local competition in many cases. Information on the global competitors is difficult to find and analyze, but you can’t ignore their influence. Many of your inputs are sourced overseas. As you project your input costs you have to be aware that a number of things can influence the long-range price of these components.