As a full-time business plan writer, one of the questions I get asked commonly is how do I project revenues and expenses when the business is not established yet and there is no data. The truth is, there’s always data. It may not be data from the business that is looking to protect their financial statements, but there is data from comparables. This is why the market research and Industry analysis section of the business plan is so important. The market research and Industry analysis section of the business plan creates a basis of assumption for projecting the financial statements. The market research allows you to find data on population growth, income statistics, racial demographics and more. The industry analysis allows you to grab data on your industry and competitors. This includes information such as common industry profit margins, industry wages and more. By looking at this data, you can form an educated guess, also called an assumption, which allows you to project your revenues and expenses. For example, if you are opening up a restaurant, the market research may show data for how many people come into the plaza where you will lease space. The industry analysis will show you food cost and what is commonly going on in the industry. All of this information is used as the basis for your marketing plan and financial projections. When you are an established business, you simply look back at your data. For example, if you have been operating a restaurant for the last three years, then you can look at how much money was made, what was the busy season, what was the most popular selling plate, and more. These will form strong assumptions to project your revenues and expenses next year. You will begin to see a pattern in regards to how much money you’re spending on marketing, or where you are marketing, and how much revenue is being made. This should end up being a mathematical formula. For example, the restaurant owners spent 10000 + marketing a year and made $100,000, and then another year they spent $20,000 on marketing a year and made $200,000, and so on. Now business doesn’t run this smoothly and this linearly, but there will be something that stands out in the data that allows you to mathematically equate and investment in marketing to revenue. This will act as your basis of assumption when projecting and established companies revenues over the next time period. Hope this was helpful. – Nick NicholasCoriano.com
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