How many years financial projections?
Shared by bukunmi · 39d ago · 13 comments

Just wondering how many years financial projections should you make? Some say 2 or 3 years. Others say 5 years.

What do you think?

tegaogaga · 16d ago

Typically, I will advise that you do 5. Just remember that your projections till the 5th yr must be based on solid and well thought out assumptions.

Good luck

manojranaweera · 38d ago

Hi Bukunmi

Detailed level - first 2 years
Headline figures for the next 3 years - obviously you need some level of details to arrive at the headline figures.

Next 12 to 18 months, as detailed as possible.

I'm building a library of pitch decks at https://www.edocr.com/user/deallite which are linked back from https://deallite.uk, as well as when I take punt on FOMO startups on CrowdCube and Seedrs in the UK.

Here's one https://www.edocr.com/v/vkzke0ml/deallite/qfinds-pitch-deck-crowdcube

Brainsprays.com · 38d ago

Hey, kind of you to share Manoj! Thanks!

I agree with your advice, that projections speak to the vision and state of mind of the team/founders. Your comments echo what a recall from an old video post from Brad Burnham of USV on the topic.

But the sample in the deck you linked to seems to be (IMO) an example of how poor financial projections can make you doubt management for the very reasons you've mentioned above :D

Look at slide 28 and you'll see that the exact same number, 60,000, is copied and pasted ad nauseam (double digit frequency). To add insult, the same projections it indicates management expects their accounting software venture to be profitable in year one.

I realize it's a sample, but using your aforementioned framework, do those projections suggest management put any effort or thought into the projections?

Thanks again for posting your response on this. It refreshed my thoughts from a discussion on this topic just a couple of weeks ago.

manojranaweera · 37d ago

Many apologies. I didn't even look at the pitch deck, just found the first one with a financial forecast slide.

I invested £10.08 in the company.

This is my theory on punt investing. https://www.techcelerate.ventures/the-birth-of-nanoinvestor-puntinvestor-movement/

I'm currently raising investment for one of Techcelerate Member companies. We still can't work out a decent financial forecast. However, the first customer was invoiced.

For https://skilledup.life, I have no forecasts at all.

I only ever wrote business plans for my first tech company 2004 to 2006. I lost a fortune on this company. Here it is https://www.edocr.com/v/yovjebb7/ebdex/ebdexs-business-plan-last-version-fine-tuned-for-e. Which has quite detailed forecasts.

Brainsprays.com · 37d ago

No apology required! If you didn't post it I may have forgotten how much data about founders those numbers convey. So thank you!

But perhaps my point wasn't clear.

It's about the thought process. Management's projections always tell you something about who you are dealing with.

Here's the Mint.com (acquired by Intuit/Quickbooks) pitch deck.

https://bspray.me/MintDeck2007

Look at the slides composed, predominantly, of numbers:

Slide 4: Market Size and CAC Assumptions
Slide 7: Value Prop (Quantified With Their Assumed Customer's CAC)
Slide 10: Financial Projections (Mostly Revenue Detail Supported by Slide 4 and 7 Story)
Slide 18: Assumptions (Just Build up Of Slide 10 Revenue Detail Basically)

These are not just numbers. This is a "story" told with numbers and it get's people thinking about what's possible for this company. It's old, but illustrates how the projections can speak to a founder's vision and state of mind (IMO).

Hopefully it's useful to you or Bukunmi on some level.

bukunmi · 37d ago

Thank you @BrainSprays

manojranaweera · 37d ago

On a side note, Slideshare and Flickr inspired me to launch edocr.com in 2007. Never thought Slideshare would become another asset of Scribd who was my main competitor.

At the end, Scribd became the winner. edocr.com still continues but on a different vision to mine.

I'm using edocr.com to build shareable document libraries.

bukunmi · 37d ago

Thank you @Manoj

woutdispa · 36d ago

I've never heard of 5 years... ¯\_(ツ)_/¯

kendsouza · 38d ago

Your numbers have to be credible or atleast seem to be credible. It should be based on traction. If you have 0 sales, you cannot project for 2, 3 years or 5 years..it will appear all bogus as it is obvious. You have to show when you will make your first sale, 1st month and the current year. Even if you have traction..it all depends. If you have $100 in sales, you cannot say you will reach million dollars next year or 5 million in 5 years. For financial projections, there has to be some consistent growth over some period.

manojranaweera · 38d ago

You can forecast even if you don't have revenues. Whilst nobody believes in the forecasted figures, it helps to convince that you have thought about it and done some home works.

bukunmi · 37d ago

Thank you Manoj,

This was my initial thought about the startup I'm building. Yeah, just looking fundamentally at how long the projection has to be, in terms of duration. Tho I understand that there is no one-size-fits all way of doing this yet I feel like it makes sense for a startup founder to at least have something in mind as a 'possible' default in terms of 'years'

So a few month ago, I had this accountant/SMB finance expert explained to me, trying to convince me that it doesn't quite makes sense to project up to 5 years as that would look bogus and almost unrealistic to potential investors when you are a startup with no revenue just yet. While he believed 2 year projection for a startup is optimum, max. should be 3 years.

I think the balance between bogusness and realistic goals that are actually achievable is required. I'm not gonna be making a 5 year long financial projections anymore as I was initially confused with a financial statement sent
to me by an equity agency or so (Marquee equity). Not blaming them tho, might just be a place holder or template for me to go through. Rather than trying to fit it into our startup). Was all wrong.

Eventually I might want to straight up do a 1st year or 2nd year detailed projection. If that makes sense, then project to 3rd year max and see how the data plays out. Else, 2 years is okay.

manojranaweera · 37d ago

Well done on the decision taken.