What Investors Want to See in a Financial Forecast - BusinessTown

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What Investors Want to See in a Financial Forecast

 What Investors Want to See in a Financial Forecast From your cash flow situation to your revenue drivers, learn how to develop a financial forecast that will attract investors.


Out there talking to entrepreneurs, I often get asked about what investors are looking for in a five-year financial forecast. First off, what is a five-year forecast? Your first reaction is probably, “It’s impossible to predict.” Startups are volatile; there’s risk, and it’s heightened. So yes, it’s not possible to predict, but that’s not the purpose of a five-year forecast.

Five-Year Forecasts Communicate Your Strategy

The purpose is to communicate your business strategy and your execution plan as it relates to key things like hiring, marketing, and liquidity. Too often, I see entrepreneurs pitching—pitching all the time—with market data. There’s the slide about the team, the addressable market, the problem they’re trying to solve, and the market strategy. Yet when it comes to financials, they’re an inch deep and a mile wide.

Show Investors Cash Flow in and Out

Now, you may be saying to yourself, “I’m not an accountant or financial whiz.” You don’t have to be; I get that all the time. Think about your financial models from the perspective of cash coming in, cash going out, and how much cash you need to keep this afloat until you make money. Since businesses start with customers and their willingness to exchange some value for a product or service, we need to understand the customer’s needs and the market potential. Before you even sit down and make an attempt at a financial model, make sure that you’ve thought about some of the following things.

Your Audience, Market Segmentation, and Customers

1. First, know who you’re selling to. This is by far the most important building block of a financial model.

2. Do some market segmentation. What is your addressable market? How big is your market? This comes down to how many marketing dollars you have to deploy and where you are going to deploy them. Let’s face it, if you only have $100,000 in marketing dollars, there are only so many customers you can market to.

3. And third penetrate the market. This is the end result: the number of customers you’ve got, or said another way, this is how successful your marketing dollars were in converting those people into actual paying customers.

Identify What Drives Revenue

Let’s start identifying the drivers of your income statement. Let’s start at the top: revenue. What drives revenue?


Who are your customers? Are you to B2B? B2C? Small businesses or enterprise customers? How much can you sell today? Or better yet, how quickly can you capture market share?

Product Mix

Product mix also drives revenue. What are you selling? Are you selling one product, five products? What are you selling today? What are you selling next year? Make sure that you’re thinking about your customer acquisition strategy and your customer acquisition cost by keeping in mind that these costs will appear most likely in the operating expense section of the P&L, not in costs.


Pricing obviously drives revenue. Ask yourself, What is your pricing model and why? Are you a fee-for-service? Are you fixed price? Recurring revenue versus transactional revenue? Do you offer value-based pricing? And how does pricing evolve over time? Are competitive forces driving long-term pricing down? Revenue is simple. How many widgets do you sell, and at what price? Just for be prepared to defend and discuss your volume assumptions, your pricing model, and why you’ve done what you’ve done in your business model.

The Income Statement

Now let’s work our way down the income statement, taking a big-picture look at what investors will be expecting in your cost of goods sold, gross margin, and operating expenses.

Cost of Goods Sold

Your cost of goods sold is, in essence, what it cost you directly to produce your product or deliver the service. In this section of the financials, investors are looking for a few things. They will be looking for whether you’ve clearly thought about your sourcing and production strategy and if it’s realistic. For a product company, where will you be getting your materials? How will they be transported? Where will the inventory be kept? For a service company, how much do your people cost? Is your staffing plan lined up with your volumetrics?

Gross Margin

Your gross margin is, of course, what’s left over to pay for everything else. So ask yourself, Is gross margin expanding over time? That’s a metric that investors will want to see. Gross margin, and gross margin expansion, is telling whether you can afford to run and scale your business.

Operating Expense

As we keep moving down the income statement, the next section is your operating expense. This section is really where you show investors whether you know how to scale your business and what it takes. Investors are reading your story through the numbers. Investors are aces at this. You need to make sure that your story that you’re telling them verbally lines up with the story that you’re telling in your financials.

Net Operating Profit

The bottom line of the income statement is your net operating profit. This is what’s left over net after deducting operating expenses from gross margin.

So that gets us to the bottom of the income statement. And those are some of the big-picture items investors are looking for and want to be able to marry up with your pitch and your financials. But it all starts with the answering the question, Who is your customer? How many of them are out there, and how do I get them? Once you know those things, you have to scale your business, whether by insourcing or outsourcing certain functions.


The single most important element for investors is liquidity. What are the liquidity needs of the business? How much money do you need to execute your business plan? Building your financials will tell you what your cash position is each month so you can see what your cash flow point is, and when. Your liquidity plan also gives you insight into your anticipated cash burn. How much and how fast do you use cash? How long is the plan? What is the liquidity inflection point? When does this business start making money?

As you can see, a financial model is more than just numbers on a spreadsheet. It’s a communication tool. It’s really all about tying and threading your story from your pitch into thoughtful, grounded, realistic financials.

About Steven Byler

Steven Byler is the COO and a Co-Founder of GrowthLab Financial Services Inc. He and his company are dedicated to serving the financial needs of entrepreneurs, small- and mid-sized businesses, and financial/private equity sponsors.

Working with startups for over a decade, Steven understands the range and flexibility that startups and small businesses need from their vendor partners. Thus, his team has built GrowthLab to serve the range of needs in management consulting, business and financial advisory, and outsourced accounting.

On the strategic side, Steven provides financial advisory and consulting services including business, financial, and cashflow modeling; strategic planning; CFO services; and capital markets and restructuring guidance. On the tactical side, he manages GrowthLab’s bookkeeping business unit which is comprised of over 20 accounting professionals providing outsourced business accounting for startups and small businesses throughout New England.

Steven is a frequent speaker and panelist at events across New England. He can often be found crunching numbers, analyzing dashboards, working on continuous improvement, and hanging with GrowthLab’s coolest startups and entrepreneurs. The only thing he loves more than the startup world, is his wife and three boys!


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Watch the overview video

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  Start-a-Business 101 Course Content

1.  How to get started with your business

2.  Discover hundreds of great business ideas

3.  How to choose the best business idea for you

4.  How to validate your business idea

5.  Find the perfect name for your business

6.  How to choose the best legal entity for your business

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8.  How to create your business plan

9.  How to do your accounting and financial statements

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11.  How to create your marketing and attract customers

12.  How to build your online marketing presence

13.  How to make sales and land your first customers

14.  The Small Business Toolkit

15.  The Discussion Board

Every step of the course is filled with videos and companion tools to show you exactly how to start your business.

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Watch sample videos

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Frequently Asked Questions

When does the course start and finish?

This online course is completely self-paced – you decide when you start and when you finish.

How long do I have access to the course?

After enrolling, you have unlimited access to this course for as long as you like – across any and all devices you own.

What if I am unhappy with the course?

If you are unsatisfied with the course for any reason, please contact us within 60 days and we will give you a full refund, no questions asked.

What are the course requirements?

This course is for anyone thinking about starting a business. You don’t need to have any previous business experience whatsoever. Even if you have business experience, you will discover a vast amount of powerful new ideas that will help propel your business ahead.

Can I download any of the content?

Of course! All the worksheets, case studies, samples, and templates are downloadable.

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Start-a-Business 101 is a complete proven program that will take you step-by-step through your entire startup journey.

You will get…

  Easy-to-follow videos

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  Discussion board

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In just a few minutes a day, you will learn how to start your own business.

You can test drive the entire course for 60 days.

That’s right. You can try Start-a-Business 101 risk-free for 60 days. You will have full access to the entire course. If you decide it’s not for you, or if you don’t love it, I’ll give you a 100% refund. No hassles. No questions asked. I want to help you succeed in your own business.


Start-a-Business 101

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