How can you make your financial projections more credible and trustworthy for investors?

1 Use a bottom-up approach

Rather than starting with a large market size and assuming a certain percentage of it, use a bottom-up approach that builds your revenue from the unit level. Identify your target customers, their needs, and how much they are willing to pay for your solution. Then, estimate how many customers you can acquire, retain, and grow over time, based on your marketing and sales strategies. This way, you can show investors how you will create and capture value, and how you will scale your business.

2 Validate your assumptions

Your financial projections are based on a set of assumptions that may or may not hold true in the future. To increase your credibility, you need to validate your assumptions with data and evidence. For example, you can use market research, customer feedback, industry benchmarks, and historical trends to support your assumptions. You can also test your assumptions with experiments, such as launching a minimum viable product (MVP), conducting surveys, or running ads. By validating your assumptions, you can reduce the uncertainty and risk of your projections.

3 Include scenarios and sensitivities

No one can predict the future with certainty, and your financial projections are subject to various factors that can affect your performance, such as competition, regulation, technology, and customer behavior. To account for these uncertainties, you can include scenarios and sensitivities in your projections. Scenarios are alternative outcomes that reflect different assumptions or events, such as best case, base case, and worst case. Sensitivities are changes in key variables that affect your projections, such as price, cost, growth rate, and churn rate. By showing how your projections change under different scenarios and sensitivities, you can demonstrate your preparedness and flexibility.