How to Use Financial Projections to Tell Your Growth Story

Potential investors want to know where your business is going and in what way their investment is can help you get there. That’s why it’s important to present a set of attractive and realistic financial projections when raising capital.

When creating financial projections, approach it like you are telling a growth story about your company. Then validate the story by showing numbers and analysis through your financial statements. The individual income, expense and investment components come together through financial statements and metrics to illustrate where you’re going and what it will take to get there.

Building Your Financial Projections

As a starting point to build your projections, use your historical data as a baseline. In most cases, investors want to see two to three years of historical financials to set the stage; but, if you have a shorter operating history, use everything you’ve got. Historical financials are critical in part because they express what you have accomplished up to this point, and also because it sets a foundation for the scale and efficiencies you will reach in the future. Furthermore, historical financials can inform how you manage your business and prior investments internally as well as the external market appetite.

Related: 8 Principles to Build Attractive, Realistic Financial Projections for Startups

With historical financials at the ready, you can tell your growth story through revenue on the P&L. By starting with your most basic elements—units sold and pricing by channel—you can derive gross revenues. A clear idea of unit economics is key to be able to plan for the future.

The next layer down on the P&L will show all the associated expenses to achieve your revenue growth.

Financing for Key Investments

Once you’ve set the stage by creating an attractive growth story on your P&L, you still have work to do! Next, connect the dots through your balance sheet to determine both what investment you need to make to achieve your growth targets as well as how you will obtain those investments. Will you need to expand your sales team, grow your back office staff or hire additional key executives? Will you need to invest in infrastructure, fixed assets or significant amounts of inventory? These questions will help you determine the investments that need to be made to fuel your growth.

Assessing the required investment capital will also guide you towards the optimal type of capital to raise. Will you need to secure additional equity? Can you obtain debt financing? Or will you need a bit of both to maintain a strong balance sheet? No matter what your answer is, plugging in these proposed investments is a key part of your projections so an investor can understand the commitment needed to catalyze growth.

It goes without saying that you also need show a judicial cash management approach—as they say, “treat every dollar as if it were your last.” This can be illustrated in your projections by showing a responsible cash burn and controlled spending.

Finally, remember that all investors are going to discount your projections. However, if you’re too aggressive with your numbers it could potentially jeopardize your credibility with investors, and therefore a combination of aggressive and realistic is the way to go. Highlight that your startup has incredible potential to scale and generate profits, and do so in a manner grounded on realistic fundamentals. Begin with a realistic base case and include an upside case as well showing the potential if all your ducks are in a row.


Gearing up to fundraise?

Raising Capital for Tech StartupsYou already know how to achieve the next big growth milestone for your tech company, but do you know how to land the funding deal you want?

This guide explains the most important components of a successful fundraising strategy and how to prepare.