I’ve helped hundreds of business owners create financial projections for their business plans. It is always a most interesting process.

When we build the model, we always start by projecting individual products and product lines, asking simple questions like “How many units can you commit to selling in the next three years?” and “What do
you expect the price to be?” Most of my clients can answer those questions quickly; some have to think them through.

After we forecast all of the products and roll them up to create the sales projections, we have some idea of how big of a business the owner thinks they can create.

Sometimes the numbers are lower than expected, and the business owners have to increase their projections to have a business that is attractive to investors. This is dangerous, and I try to encourage them not to be too aggressive. After all, it is better to predict $2 million in sales and hit $2.5 million than it is to predict $3 million in sales and achieve $2.5 million.

Sometimes the numbers are incredibly large, even in the $billions. Do you how many companies achieve a $billion in revenue in the first three years? None. Zero. Never happened. Google started in 1996, and hit $85 million in 2001, five years later. Apple was the fastest to $1 billion in revenues, achieving that number in 5 years.

Hitting $20 million in three years and $50 million in five years is a grand slam! Creating a company that makes it to $5 million in revenues in 3 years can be the business accomplishment of a lifetime.

So before you look an investor in the eye and tell him / her that you can hit those big revenue goals, ask yourself “Can I really do this?”

Your investors will certainly expect you to.

Questions: What is the most revenue you have ever been responsible for? Do you know what it takes to sell $20 million of anything? Are you suggesting that you will be the next Google or Apple?

Comments

There is one comment for this post.

  1. Kim Burney on October 24, 2010 2:52 pm

    Great post Paul, makes so much sense. We sometimes think gigantic and sometimes just too small – right thinking requires a bit of both I think.

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