26 ways to wreck a financial projection

and some things to do instead.

by ed mendlowitz
77 ways to wow!

hello, i am mr. no and have been asked to explain what i do and why i could be your biggest obstacle.

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i can’t help you, but i can definitely hurt you. and i love to hurt those who understate my importance. in reality, there is nothing in it for me to okay a deal, and my reputation and credibility might be hurt, and i could even lose my job if the deal flops. on the other hand, saying no keeps me safe and free from harm.

in some cases, i work as a consultant and get paid either by the hour or a flat fee. if the deal is quashed, i might be asked to accept a reduced amount, so it is to my advantage to say no as quickly as possible. saying yes requires too much time on my part, making the fee higher (which i don’t mind, but i also don’t want to lose the client because of my so-called high fees). saying no quickly is pretty easy – i just need to find one or two inconsistencies and i got my no.

two things are better for me because it looks like i did a thorough job. if i get a flat fee, the quicker i do my work, the more i average per hour. but flat fees are usually for the convenience of my client, and i usually get stuck taking a lower amount than i would have liked and less than the project calls for, so the faster i make my recommendations, the more i end up averaging per hour.

in other cases, i am a salaried employee reviewing the projection for my boss. there is nothing in it all for me to say yes. nothing! nada! zilch!

so, help me out and make a few mistakes or leave out some essential information so i can say no early on and get back to my regular work, which i always seem to be behind on.

you would not believe how easy my job is. most people sending projections my way are either lazy, sloppy, clueless or simply unprepared. they don’t get it and they become my best friends – because they made my job super easy. however, they get mad at me for not knowing what they meant or for being so unforgiving on their omissions and inaccuracies and so i lose them as my bff.

checklist: 26 reasons for no

i bet you just realized that i haven’t told you anything specific of what it takes for me to say no.

well, i have a million ways and here is a brief sampling, in no special order, so don’t say i never told you anything.

1. the projection period is shorter than the period necessary to show the biggest increase in the business.
2. there is no description of the business. the first thing i need to see is a short clear concise summary. most call it an executive summary. i don’t know how it got that name, but i also don’t know how you got your name either. none of that matters – what does matter is that i know what you want, what you will be doing and how it will happen, so i have a frame of reference for your project in a quick and easy way for me to digest.
3. not whetting my appetite for the grand company you will grow. i need to see some nice charts and graphs at the beginning showing summaries of the financial.
4. there are no cash flow projections.
5. nothing tells me how much is needed and when.
6. when you are only asking for part of what you need, when do you think you will get the rest of the funds, and how? usually, you are dreaming.
7. i am not shown what the investor gets – how much ownership of the company, what interest rate and payment terms on funds loaned to the business and the possible fortune when we want to cash out, and how.
8. i am always concerned that my client or boss turns over their money without having any control or trigger points when they can assume control. i need to see this spelled out in the business plan.
9. i love speling errors because it shows a lack of attention to detail. that is an easy out for me. don’t get too excited – i know i just made a spelling error – i wanted to see if you caught it. you must pay attention to detail – every detail.
10. the sales that are projected are done without explaining the types and numbers of customers, the typical sales units and amounts, the frequency of orders, what the customers do with the products purchased from the company, how quickly the customers pay their bills, and what if any returns, discounts and markdowns are to be expected. tell me the sales cycle. tell me how many calls or presentations will need to be made to get a sale. tell me how connected you are to the industry and what you know that no one else knows.
11. include information about the seasonality of your product or services, or clearly explain why there is no seasonality (you’ll have to be super clear on this unless you have a new breakfast cereal that every grandchild, parent and grandparent will eat every day or toothpaste product).
12. if you have a branded or consumer product, show me how you will be promoting your brand and how long it will take to connect.
13. be clear about what differentiates your business from existing one.
14. if you think i don’t want to know how the product is made and the various product lines or how you supply the services you sell, you are out of your mind – these are important things to tell me. i may not care that much, but i will use what you provide to assess if you know what you are doing and understand the dynamics of producing what you will be selling, and the practicality of your methods. i also look for inconsistencies with what you said about the sales.
15. make sure you tell me about the ease or difficulty of the supply of your raw materials or products or services and whether any products are commodities and the market conditions of those commodities.
16. i cannot imagine a business needing funds that won’t have any employees or a solid management team. therefore, you better tell me what jobs need to be filled and when and the ease or difficulty of finding the right people. a proposed organization chart would be a good idea.
17. i always like to see a timeline of how and when the business will grow. a simple timeline is great. i know the same information can be seen from monthly projections, but it makes me work harder to get the big picture – why do you want to make me work any harder than i must? the best thing for you would be to give me a pill to swallow after which i would know whatever i need to know to approve the business plan. the second-best thing is to lay it out as orderly, logically and carefully as possible. i can assure you that if i can get what i need by some quick glances i will not delve into as much as i will if i don’t have a clear picture of what you want to do with my boss’ money.
18. you are not being given money by investors so you can take out an obscenely high salary. make sure you put in the plan how much you will be getting paid, how it will increase and performance stages to qualify for bonuses (bonuses? ha-ha – what planet are you from?).
19. if you think you can receive dividends you must be mentally impaired.
20. in setting up your business plan, i need you to show me some negatives – what can go wrong – everything about what you will be doing can’t be great. i like to see a swot analysis somewhere and, in some way, incorporated in the plan.
21. not including any market research data makes me flip pages looking for it and i get annoyed because i probably used some wasted effort looking for it. you can have the best product of its kind but without a clear market need and marketing plan no one will know about it, and you won’t sell enough to make any money.
22. you need to convey your knowledge of your market and the segment you want to conquer – no new company will be able to take over an entire market quick enough to benefit from it.
23. i need to know all about your competition – who they are, how long they have been established, their ownership structure, what market shares they have, how aggressive they are in building their business, and a whole bunch of other goodies. a good start is to go online to www.dnb.com and purchase a full report for your two or three most major competitors, or your intended major competitors. these reports won’t tell you too much, but would minimally list the owners, number of employees, square footage, bank liens and lawsuit judgments and should be worth what you pay.
24. if any of your competitors are publicly traded, you should get their latest forms 10-k and 10-q and use their information in your plan in the appropriate places. you can get these at www.sec.gov/edgar. you can also enter their ticker symbol on a search engine and view research material about the company after you get the stock quote. if they are newly public (last five years) it also doesn’t hurt to review their financial structure and how they raised their capital.
25. another thing i like to see is an industry analysis. here you can purchase one from www.firstresearch.com. before you go to first research make sure you are crystal clear of the industry classification. don’t give me the whole report. abstract the information you want to tell me and put it in your report, and make it seem authoritative – but don’t put something in that isn’t provable. i might decide to check out some of your facts.
26. there is some excellent business plan software you can purchase and use as a template. each section is explained with illustrations and material you can edit and use. i am not going to explain much more. if you are too stupid not to use a fully organized format with hints and guides, then i would be wasting time going any further anyway, so i am stopping here.

some final points

1. some small things that are big things to me – get a nice logo made up if you don’t have one; show competitors’ websites and yours if you are beyond the startup phase; include product samples if applicable; resumes of the key players is a must; show a detailed marketing plan and even letters from potential customers if possible; ask for the right amount – many plans i see ask for too little, and that is fatal; and print it on good paper (rag bond) and bind it so the pages lie flat and make it standard size so it will fit in my case easily or if emailed it will show easily on my screen.
2. never forget that you are using the business plan to make a sale – i am your customer, not my boss. you already “sold” him or her when i got the plan. i would not have received the plan if they weren’t impressed with you and liked what you told them. write the plan to me and impress me and make me an expert in what you want to do and do it, so i don’t need to ask you any questions.i keep thinking about what warren buffett said when he was given the lehman brothers financials to review when they were trying to save their company. he said he started to look over the financials and every time he had a question, he jotted it on the cover. at one point he looked at the cover and saw it covered with so many notes that he figured it had to be too complicated a transaction for him – so he passed on it. oh, if you email the report, don’t worry too much about the quality of the paper.
3. make sure you reread your plan a couple of times before submitting it to me, and make sure there are no unanswered questions. ask yourself if you would invest in the business based on your business plan presentation.
4. i do have one more thing to say, “live from new york, it’s saturday night!” this has nothing to do with the business plan, but i always wanted to say it.

good luck in your pursuit of building a company and obtaining the needed financing.

posted on may 1, 2023