The Importance of Understanding Your Company’s Financial Projections

Many companies seeking investor capital retain professional service providers to put together financial projections and other information about the company, evidencing why the company is poised for growth and deserving of investor funds.  It is important that management understand these financial projections, and are able to explain them in detail, as investors dig deeper into the material and ask tough questions about how the projections were put together.

Good financial projections are a key piece to any good private placement memorandum, executive summary, or business plan.  Any company seeking investor funds or operating capital must have solid projections evidencing that the business is headed in the right direction.

Further, an understanding of your company’s projections can be just as important as making sure that they are well put together.  A great set of projections can get you only so far with potential investors.  You must be able to explain why the projections say what they do, and how your company will turn them from prognostication to reality.  Understand that there are many ways to create projections and if you have hired an accountant, valuation firm, or consultant to put yours together, that they may be employing a complex matrix of considerations when projecting your company’s growth.

While potential investors may be impressed with the overall product, most are going to be interested in peeling away the layers of any financial projection to get at the nuts and bolts as well.  Any good management team for a company seeking investment capital would do well to understand how their projections are put together, and what assumptions were used in the process.  A good understanding of this information will allow a management team to confidently explain to potential money sources how the company will address each assumption, and make it a reality.

The article provided above is for general information purposes only and should not be relied on as specific legal advice. This article does not form an attorney-client relationship. If you have any questions about this article, please feel free to contact Eric J. Camm at Eric@apexlg.com

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