Over the past five years, I have reviewed financial projections for contestants in business pitch contests sponsored by The Entrepreneurship and Innovation Center at the Warrington College of Business at the University of Florida.
The entrepreneurs ask for the review so they can pinpoint potential weakness with their projections or validate their approach. Those who only need validation are easy to review and congratulate. They are in the minority.
The others offer a lesson for entrepreneurs making a pitch, regardless of whether it’s for a contest or a real-life pitch to investors.
I generally find several simple financial concepts entrepreneurs fail to address, and I recommend action to take:
They are in love with the concept of their product or service. This translates into unreasonable projections based on unreasonable sales and profit assumptions.
Ask an expert or experts in the industry to vet your assumptions.
Lots of engineers or other people with technical experience and no accounting expert on the team. Unfortunately, internet searches lead to a one-size-fits-all financial statement format. Service companies should not use the same format as a manufacturer.
Add an accounting expert to the team or find an accounting expert to provide consultation.
Entrepreneurs frequently welcome the opportunity to talk about the concept they are pitching, but they present illogical financials.
It’s valuable to have your financial projections questioned because it gives you a chance to test your concept against normal financial logic.
Failure to test assumptions via pilot sales programs or marketing studies. The argument is that you need to raise money first.
Find a way to test the market. I offer the example of a company with a service that actually tested the service at one venue. The company knew that the owner of the test site would not buy the service, so it gave it away. Food and beverage sales increased on nights when the service was provided. Using that data, the company was able to project traffic and sales increases at other venues. At that point, the other venues were willing to pay for the service.
Keep in mind that you can’t get too much help. Obtaining the input of seasoned professionals will provide a reality check that will pay long-term dividends.