From the course: Creating a Business Plan

Financial assumptions

From the course: Creating a Business Plan

Financial assumptions

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- A major component of your business plan is your financial plan. And the first step in building that financial plan is documenting your assumptions. What are you going to assume, and what's the grounding for those assumptions? Maybe you look at comparables, market research or basic estimates to figure out what that ingoing assumption is. You'll also need to lay out what the best case and worst case scenario is for each assumption, because they'll drive different financial performance. Then explain how large of an impact each assumption has on your overall financial performance. For example, my firm runs training classes. In the beginning, when I wrote the business plan, we had assumptions around the price of our courses, and we looked at comparable training to say, here's our assumption and here's what the market bears. We looked at conversion rates in terms of sales. We had an assumption around how many participants we would have in each class, because we charge on a per participant basis. I had to make assumptions about the number of courses we would offer and how many instructors I would have on the team. And then each of those assumptions had a low, medium, and high estimate that drove similar scenarios in the eventual financial forecast that we built. We also, in the business plan, clearly explained that the biggest assumptions we had were around pricing and conversion rates on sales, because they drove the business case financials more than any other assumption. By having your assumptions clearly articulated, you can track your financial performance and revisit those assumptions over time to make sure your forecasts are as accurate as possible.

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