Should I be conservative in my sales forecasts?
How to ensure your financial projections are credible and realistic
I’ve just received final prototypes for a range of new baking equipment I want to start distributing. I’m currently writing a business plan in the hope of securing a bank loan but I’m stuck on the financial projections. Is it better to be conservative in my sales estimates or assume I’ll secure a major stockist quite early on?
Emma Wimhurst writes:
Decisions about whether to loan monies to businesses or not are not simply made on the financial projections of a particular project. More often than not it is whether the entire business plan is a credible document which gives a positive and realistic picture of the outlook for any one particular business. In your particular situation – you have clearly demonstrated that your products actually work by investing your time and efforts in creating prototypes.
You now need to prove there is demand for your products – not simply from the department stores and specialist online shops – but more importantly that there is room for your product in the market place, and the end-consumers need and desire your baking equipment.
If you can secure a firm commitment from a major stockist before your meeting with a bank, you will probably find they are far more interested in investing in your project.
To answer your specific question regarding your sales estimates – I always advocate being realistic with financial projections, particularly when you are determining the commercial viability of a project. If you have quite differing situations – depending on the success of your products in major department stores – why not have two financial projections as part of your business plan? Base your entire plan on the most conservative situation, thus demonstrating the viability, and then provide further encouragement to invest in your business by showing just what may happen if the proven interest develops into actual orders.
Finally, taking an open and honest approach with your stakeholders will generate trust and ensure an excellent working relationship. Always be realistic and demonstrate your knowledge and passion, not only in your particular product, but also in the way you run your business.
Emma Wimhurst is a business turnaround expert and author of BOOM! 7 Disciplines to CONTROL, GROW AND ADD IMPACT to Your Business. She will also be speaking at Startuplive in London on 18 November. www.emmawimhurst.com