How to Generate Your Business Plan Financial Assumptions. If you are bothered with such questions as; what is the business start-up financial assumption? Or, how do I create my business plan financial assumption? And may be worried about, how do I start a financial plan for my business? All of these giving you headache as to how do you write a financial projection for a start-up business? Relax then! here is How to Generate Your Business Plan Financial Assumptions.
The 3 Essential Financials:
As a matter of fact, here are how you will generate your business plan financial assumptions and the analysis. They are the universally accepted key assumptions for business plan financials. In fact, properly executed financial assumptions will certainly generate acceptable financial statements projections.
As a matter of fact, three universally accepted accounting standard financial presentations expected in all business plans include a projected income statement, balance sheet and cash flow statement for the period under projection. These are followed by a well worded narrative that explains your assumptions and how the line items were generated.
Financial or Budget Assumptions:
Furthermore, here are the budget Assumptions – Learn how to improve your budget/financial estimations using them
According to Dicio, a premise is “a proposition; an initial fact from which reasoning or study begins ”. For example, when we talk about human rights, we start from the premise that every child has rights, or when it comes to biology, we start from the premise that all human beings are mammals.
Financial budgeting is no different. Therefore, when starting your financial planning or budgeting, every you must define what the premises that will guide the process are and that will be used by the organization as a guide for the next steps. The budget assumptions are, therefore, the basic guideline to start the budgeting process. And in turn must be in accordance with each of the scenarios chosen for the project in perspective.
Strategic Indicators for How to Generate Your Business Plan Financial Assumptions
Financial assumptions are like strategic indicators. Consider this in parallel perspective between the planning that is necessary before an airplane takes off and the planning that is necessary before starting a company’s operations. When the pilot sits down to draw the flight plan, he makes a prior survey of internal factors that may affect the trip, such as the number of passengers or the weight of fuel and also the survey of external factors, such as weather forecast.
In business plan financial projections and analysis we follow the same principle. Before starting the estimation, it is necessary to define the principles that will guide you in this process. That is, the so-called Business Plan Financial Assumptions.
Economic Scenarios as Premises:
The first of these assumptions is the expected economic scenario for the period to be budgeted. The economic scenario is important because it defines the external factors that can influence the company’s performance in the projected period. Making an analogy, we can say that the economic scenario is for those who make the estimates as well as the weather forecast is for the pilot who makes a flight plan.
In other words, the business plan financial assumptions are like beacons that will give a direction to be followed and also define minimum and maximum limits of what the managers can work within the projected planning period. This is to enable them in search of improving the results and of course, reaching the global objectives of the organization.
Table of Premises on How to Generate Your Business Plan Financial Assumptions
As a matter of fact, based on this prior analysis, the so-called table of premises is created. Therefore, you have tables for Fixed Assets, Working Capital, Direct Inputs, Indirect Inputs and personnel requirements. Then work out your stock of raw materials inputs as part of the working capital. And, now work out also your revenue streams expectations.
In fact, these are all estimated numbers, which the company assumes as premises. That means, if they change, the rest of the budget that depends on them will also change. So, you must be careful in generating the variables used in these assessments. A change in one variable leads to changes in all the parameters to be generated. So when clients or managers points at a variable to change, little do they know that they are asking for a fresh business plan.
The Planning, Execution and Reporting Stages:
Furthermore, you need to know how the financial assumptions fit into the entire business plan or your business operation process. This is because this process is basically divided into three major phases: Planning, Execution andReporting/ Monitoring.
So, as already hinted above, it’s during the Planning phase that the Premises are defined. They are to serve as guidelines for the rest of the process. In summary, we can say that after choosing the most likely scenario, then prepare the table of premises for the budget plan.
The Planning Stage of How to Generate Your Business Plan Financial Assumptions
As a matter of fact, it’s in the Strategic Planning phase, that you analyse the macroeconomic scenario, map its current situation and defines the strategic objectives to be achieved. Then, in the operational planning phase, you assemble the plans to reach the established objectives and translate this into numbers, through the financial analysis.
Note that the definition of Budget/Financial Assumptions is the intermediate step between the phase most linked to strategy and the phase most linked to operation within the planning process. It’s in this stage that the key parameters are defined that will connect the strategic plans to the operational plans.
What does your company not give up?
A lot is actually involved in writing a business plan of this nature. You have to verify your propositions from time to time. What I do is to generate an income statement for every scenario. Even though I generate this automatically with my templates. For those doing it manually, it’s a haculenet task. Each scenario will be able to let you know whether the operation is worth it or not. So, at this point, it’s normal to carry out tests and experiments such as, for example, personnel reduction, and substitution of raw materials, opening or closing of Distribution Channels, changes in the sales product mix or any other type of simulations with the objective of finding ways to reduce costs or increase revenues, consequently improving the company’s profit.
As a matter of fact, at this time, with a well-assembled framework of Business Plan Assumptions you will be able to define what your business does not give up, under any circumstance. Be it more objective criteria such as the level of product quality, location of stores or even more subjective criteria such as ethical issues or even related to loyalty with partners and suppliers.
The Need for Alternatives on How to Generate Your Business Plan Financial Assumptions:
This write-up is extremely important for each manager/business owner or business plan consultants to know exactly what/when/how they can look for alternatives to improve the results of their operations. And also what are the fundamental premises of the organization and how to maintain them.
Business plan is defined as a business road map. Therefore, the financial assumptions are also a great communication tool. In fact, it helps the organization realize its budget in a collaborative and decentralized way, avoiding problems and increasing the general alignment of the various segments of the business in relation to the strategies to be adopted.
And now, what does your business gain by defining the Business Plan Financial Assumptions?
Yes, if you have read this text so far and are not yet convinced to create a Framework of Premises before starting your business plan projections, here are some more advantages:
- More effective communication of the basic parameters that must be respected, reducing the number of revisions, adjustments and corrections in the financial estimates. Increased alignment between business segments;
- Improved connection between Top Down and Bottom-Up Planning;
- A more holistic view of the macro and micro scenarios in which the business operates;
- Better level of predictability of future results;
- Possibility of analysing separately the variations in the result due to changes in the budget premises of the variations arising from operational issues.
In fact, these post will help you undersstand your business. Click any of your choice and you are there.
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Conclusions on How to Generate Your Business Plan Financial Assumptions
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Founder/Managing Partner of Complete Full Marks Consultants Ltd. An Economist turned Chattered Accountant and Tax Practitioner with over 37 years of industrial experience.