11.1.  Key Assumptions

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The Guide > 11.  Financial Projections > 11.1.  Key Assumptions

Use this section to review and pull together the key assumptions to be used in the financial projections.

The following table indicates the diversity of assumption variables that may need to be considered in order to produce projected P&Ls, cashflows and balance sheets for a business.

Sales volumes
Selling prices
Selling & distribution costs
Tax rates for inputs
Research & development
Interest rates
Tax rates for sales
Changes in loans/debt
Bad debt provisions
General overheads
Operating leases & HP
Target finished stocks
Depreciation rates
Current year debtors/creditors
Opening balance sheet
Fixed asset values

Intangible assets
Material costs
Accumulated depreciation
Material/WIP inventories
Capital expenditure
Share issues
Direct head count levels
Capital & revenue grants
Wage rates
Fixed asset disposals
Corporation tax
Other direct costs
Finance leases
Phasing of opening balances
Operational overheads

Relate your assumptions for sales, costs, head count etc. to the detailed plans/schedules outlined in preceding sections. In most cases, it will suffice to refer the reader back to the appropriate subsection. For example:

The key assumptions have been based on the following:

Sales projections derived in 7.4 Sales Forecasts and based on 7. Marketing Strategies, Sales Plans & Projections.
R&D expenditure as described in 8. Technology and R&D.
Operational plans and expense projections as presented in 9. Operational Plans.
Funding of $xx (equity) and $xx (loans) will be secure in the first quarter of 20XX as proposed in 12. Funding below.
and so on ......


Having covered the main assumptions within earlier sections of the plan, you will probably still need to insert a simple table here showing some elements of the projections that have not been mentioned previously. These could include:

Depreciation rates for different types of fixed assets.
Interest rates for loans and cash balances.
Inventory stocking rates for finished goods, materials and bought-in items.
Sales and value added tax rates for inputs and outputs and payment intervals.
Credit terms for receivables (debtors) and payables (creditors).
Anticipated external funding (see below).

When determining funding needs, consider the following approach:

1.Compile projections without any external funding and take note of the peak cash deficit and its timing. The total funding requirement is likely to correspond to this deficit. It should be injected (in one or more tranches) ahead of being required so as to eliminate (or minimize) unacceptable deficits and perhaps to create cash cushions.
2.Analyze the projected financial ratios (debt/equity, interest cover and current asset) to help determine the optimal mix of debt and equity.
3.Plan to finance the "most likely" case, or even "worst" case, rather than for the "best" case as revealed by sensitivity analysis. Whilst the "best" case may show the smallest funding need, it may be unattainable due to the inevitability of some aspect of the double (costs), double (time) and half (revenues) rule.

Having progressively built up tables for sales, costs, expenditure and staffing in earlier sections of the plan, you should now be in a position to develop pro-forma financial projections and to summarize them in the following subsections. Under no circumstances should you simply insert multiple pages of detailed spreadsheet output to cover these items. Instead, summarize the projections as per the suggested subsections and relegate all the detailed assumptions and output reports to appendices or simply retain them as working papers. The sample "pictures" shown in the subsections below are very clear and simple to follow. However, they have been backed up by about a dozen assumption and output reports that could be made available on request.

For help with financial projections, see Financial Projections with Exl-Plan.

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For latest information, see the Financial Projections section in the Business Plan Guide at http://www.planware.org/gfinancials.htm


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