How many years of projections to include in a pitch deck? As a new startup seeking funding from investors, one of the essential things they are expecting to see is financial projections.
This is not only important for managing your business, it helps calculate what you expect to make in the future. Like a budget, financial projections will forecast future revenue and potential expenses for the startup.
Financial projections when added to a business plan and are a way for you to strategize your way to your goals.
How many years of financial projections should you include in a pitch deck? Forecast both short-term and long-term financial projections to potential investors.
The short-term projections are usually broken down by month, and you will provide a year’s worth of expected income and expenses. Longer-term projections will cover the next two to five years’ worth of financial projections.
Work on this closely with a team of experts. Don’t walk into an investor meeting not knowing exactly what the market looks like, competitor data, and industry benchmarks.
Also be clear on where you believe the company is going, and how you will get there. Or not knowing how to explain and back up your data.
The Ultimate Guide To Pitch Decks
Here is the content that we will cover in this post. Let’s get started.
- 1. Why Are Financial Projections Important in a Pitch Deck?
- 2. How Much to Include In Pitch Deck Financial Projections
- 3. What Should Financial Projections Look Like in a Pitch Deck?
- 4. How to Develop Financial Projections for Your Startup
- 5. What forecasts should I make first?
- 6. Sales forecast
- 7. Expense budget
- 8. What financial statements are included?
- 9. Income statement
- 10. Cash flow statement
- 11. Balance Sheet
- 12. Set Realistic Financial Projections for Your Startup
- 13. Hire Help
- 14. The Bottom Line
Why Are Financial Projections Important in a Pitch Deck?
Financial projections in a pitch deck will either kill your opportunity of raising investment or will have investors ready to throw you their money.
Whether you are developing a traditional pitch deck, one-page business plan, or an in-depth business plan; financial projections should always be included.
Your financial projections should answer the following questions:
- How much money can you make?
- How fast will you grow?
- What is the cost of achieving these goals?
- Do you have a financial advantage in the market?
- Is the projected income enough to sustain the business in the long term?
- What is the return on investment over time?
- At what point in time will the business break even?
- How much will their share of the business be worth?
Remember that financial projections are exactly that – projections. They will only forecast what could happen and the potential for future growth.
Still, your evidence must come from thoroughly researched data before developing your financial projections for the startup to ensure accuracy and maintain credibility.
You’ll also want to estimate how many years of projections to include in a pitch deck.
Keep in mind that in fundraising storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
How Much to Include In Pitch Deck Financial Projections
Deciding how much to include will depend on the stage your business is at. For instance, your financials will consist of total funds raised to date, expenditures, and future revenue. If you’re still in the idea phase, your financial projections will be relatively simple.
Start with the following:
- Amount of consumers acquired
- Amount of revenue
- Profit margins
- Gross profit
Develop fact based assumptions and determine the worst-case scenario and best-case scenario. Be aggressive, without being out of touch with the market and unrealistic.
Create revenue estimates without overcomplicating the calculations. Remember that these projections will cover the first year, often broken down by the month. Y
ou will then show projections for the next 2-5 years. If you are still a new startup, but have been in business for a short while, you have real data to include.
You must show past performance, current financials, and future projections.
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What Should Financial Projections Look Like in a Pitch Deck?
Suppose you are working on a full business plan for your startup. You need to have specific breakdowns showing your expenses, finances, research, and predictions that lead to your financial projections.
Also focus on how many years to include in a pitch deck. You showcase your financial plan’s projected revenue and spending over the next several years.
Unless otherwise specified, two to five years in advance will suffice. This information will assist potential investors in determining how the growth of the company could look like.
The number of rows and columns you have varies on how much data you want to provide. It’s usually an excellent idea to have a reduced, minimalist version on hand for fast reference and help others absorb the relevant information.
This is something you can use in your pitch decks.
The projections in your pitch deck will:
- Tell a story numerically. The financial projections will quantify the full plan.
- Show where the business has been: If you have already launched, the investors will want to know the historical figures.
- Show where the business is going: The main goal of the pitch deck is to show the investors where you intend on taking the company. For example, how much of a return will investors get, and what is the market expected to do.
How to Develop Financial Projections for Your Startup
Creating financial estimates when your company isn’t up and running is a challenge for every entrepreneur. As a result, you don’t have any past data to help you make better predictions for the future.
However, with a bit of economic and business research, you’ll have plenty of data to work with to produce reasonable financial projections.
Here are some factors to consider:
- Use your own industry experience: Before going out independently, you may have worked for a company in the same field. In this situation, you should have a good grasp of what reasonable financial projections are, how long it takes to scale, what growth rate is optimal, and what profit margins are typical in your business.
- Work with an accountant familiar with your industry: An accountant will be familiar with the kind of costs, sales, and profits that a well-run firm in your sector might expect and can assist you in developing a clear financial prediction.
- Perform market research to create a long-term business model: Industry associations can assist you in getting accurate financial data.
- Be realistic with your projections: Investors are well aware that your projections are not fixed and will change. They want you to be bold, but honest. They will ask questions and scrutinize your data to understand it, and how you arrived at these figures. It is a normal part of the process, so welcome it.
What forecasts should I make first?
If you want to establish credibility with potential lenders, there are two essential forecasts to show:
You will be forecasting the sales for the next 2-5 years and the expected monthly sales for the first 12 months. The sales projections will provide you with the data to forecast revenue.
- How many customers do you expect to have?
- What is the number of units you expect to sell?
- How much does it cost to sell your goods?
- How do you plan on pricing your products, and why?
Your expense budget should show the expected expenses you incur while running the business. They will be fixed costs (expenses that don’t change) and variable expenses (expenses that fluctuate).
Your expense budget doesn’t have to be detailed, but you should show general figures. Also, keep an eye on how many years of projections to include in a pitch deck.
Would you like more information on how to present financials for a startup? Check out this video I have created that you’re sure to find helpful.
What financial statements are included?
Three essential financial statements must be prepared in business planning. These include:
Also known as the profit and loss statement, it will focus on revenues and expenses. The key elements Included in the income statement that will give you the net income is revenue, expenses, gains, and losses.
Cash flow statement
A financial statement shows how a company’s operations are performing. It goes through how much money will flow through your company in the form of earnings and expenses in greater detail.
Cash flows from investing, operating, and financing your business operations are three major components of a cash flow statement.
The cash flow statement will show how a business operates at that moment in time and should get updated before every investor pitch to ensure it is accurate.
The operating activities are reports of the cash coming in and out from the company’s daily activities, and will include the cash, depreciation, accounts payable and receivable, and inventory. Investing activities are all the company’s activities in their long-term future.
The financing activities will show all the company’s sources of income, such as banks or investors. Both the cash flow and income statement are connected by the net income.
The balance sheet is a general summary of the company’s financial health. The data included in a balance sheet are the liabilities, assets, if any, and owner’s equity.
The balance sheet is split into two, the assets and the owner’s equity and liabilities.
When listing your assets, you show what economic value you have that will benefit your company’s future, or can be used in a liquidation.
These can include all things property, cash, and inventory. Your liabilities are technically your obligations to someone else. What debts have you incurred?
These liabilities are both short-term, and long-term. After listing your assets and liabilities, you must show the owners’ equity. Whatever is leftover from paying your liabilities is your equity, including retained earnings.
This is a good time to estimate how many years of projections to include in a pitch deck. Because you are projecting 2-5 years, you should be forecasting the break-even point – the moment you are no longer operating at a loss.
Set Realistic Financial Projections for Your Startup
Setting realistic projections for the next five years is essential for forecasting your chances of being successful. However, there is a fine line to strike between being overly confident and overly conservative.
Investors will see through pure dreams, though may also see opportunity for bigger things that you don’t yet..
Your five financial projections will be the backbone of the business plan. The information in your financial projections needs to be a clear indication that your startup is promising.
It will speak for itself if the projections are transparent and realistic. Once you have completed thorough market research on competition and consumer trends, you can then compare it to the competition in the industry.
While being optimistic and confident is a good thing, you still want to produce solid predictions. So don’t present figures that are too far above or below what you can generate.
Set a timeline for when investors can expect to see lucrative results. They will be holding you to this. If you fall short, you may have a hard time finding the financial fuel to continue.
If you are too conservative the opportunity may not appear big enough for them to waste their time on, or get excited about.
So you have a big idea, but the numbers are tricky.
If you are not a detail and numbers person, you should consider hiring help. It’s perfectly acceptable to find people in the industry to assist in the research and projections.
If you haven’t already, hire a financial analyst. They are skilled and know all about statistics, accounting, and economics. Financial analysts will conduct deep research of any organization or market to predict your startup’s financial future potential.
A financial analyst will crunch the numbers and produce the data you need about your company and current market to create financial projections.
With a strong foundation and understanding of current trends in your sector, a financial analyst or CFO can provide all the numbers and figures you need to present to investors. Bring a pitch deck that sells that represents an investment worth making.
The Bottom Line
Understanding how many years of projections to include in a pitch deck is a critical part of your pitch deck. It is one of the slides that the investors will spend the most time viewing, and have the most questions about.
It is also one of the slides that will instantly tell investors if you really know your stuff, or are just winging it.
Get help creating and reviewing them, from both an accounting and sales perspective. Practice your live pitch, and start making those forecasts a reality.
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