California Investment Fraud Attorneys
When you begin an investment, it’s important to have a high-caliber
team with a good track record and a clear value proposition. Because venture
capitalists want to make investments that pay off nicely, you need credible
financial projections that show the viability and potential of your target
market. To come up with a realistic projection of your returns, you will
need to dive in to your numbers and articulate enough support for your
assumptions. But how do you know you are on the right track? We explain below.
Signs of Unrealistic Financial Projections
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Do My Numbers Add Up?: Skewing your financial projections to paint an unrealistic picture of
your prospects doesn’t do you any favors. An experienced investor
can see right through this. Securing funding on the strength of unrealistic
numbers can come back to haunt you when you’re trying to raise your
next round and haven’t met your targets. Present a top-down financial
model only. With this approach, you build your financial projections from
the ground up by developing detailed spending plans based on your sales
targets, anticipated hiring needs, and other major cost categories.
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Can I Justify My Assumptions?: Your financial projections are only as good as the inputs built into it.
Do your financial projections fully consider your competitors? Have you
underestimated key metrics like customer acquisition cost? Be sure you
can identify and fully support all of your major assumptions. This requires
you to research the market, and to be realistic about costs when making
comparisons.
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Do My Numbers Fit My Story?: According to Guy Kawasaki, “The point of financial projections is
to tell a story with numbers.” Ask yourself: “Do my numbers
tell a story? “Can I distinguish the main characters from the minor
players?” “Are my numbers all over the place, or are they
concise?”
Your financial projections should reflect your revenue model, your market,
and your business, not someone else’s. Make sure that these figures
support your entire business plan. Although business conditions can change,
keep these guidelines in mind when making or evaluating financial projections.
When you are assembling your projections, be sure you are:
- Utilizing typical annual profit percentages for companies in your industry
- Paying yourself a comparable salary
- Ensuring you ultimately make a reasonable return on your original equity
investment
Speak with our Lawyers Today
Do you have more questions about unrealistic return projections? Contact our California team of investment fraud lawyers, or call (310) 220-0988 to begin your complimentary case evaluation.