{"id":8438,"date":"2024-01-06T00:29:24","date_gmt":"2024-01-06T00:29:24","guid":{"rendered":"https:\/\/www.growthink.com\/?page_id=8438"},"modified":"2025-09-11T21:52:44","modified_gmt":"2025-09-11T21:52:44","slug":"developing-realistic-financial-assumptions-your-business-plan","status":"publish","type":"page","link":"https:\/\/www.growthink.com\/businessplan\/help-center\/developing-realistic-financial-assumptions-your-business-plan","title":{"rendered":"Financial Assumptions and Your Business Plan"},"content":{"rendered":"<style>\n.btn-right {\n  background-color: #294961;\n  border: none;\n  color: white;\n  padding: 10px 20px;\n  text-align: center;\n  text-decoration: none;\n  display: inline-block;\n  font-size: 17px;\npadding:16px 31px;\n  border-radius: 8px;\n  margin: 14px 2px;\n  cursor: pointer;\n}<\/p>\n<p>.btn-right:hover {\n      background-color: #005900;\n      color: white;\n}\n@media only screen and (max-width: 480px){\n    .btn-right{\n      max-width:600px !important;\n      width:100% !important;\npadding:8px;\nfont-size:11px;\n    }\n<\/style>\n<style>\nul>li {\n        padding-bottom: 10px;\n    }\nol>li {\n        padding-bottom: 10px;\n    }\n<\/style>\n<p>Financial assumptions are an integral part of a well-written business plan. You can&#8217;t accurately forecast the future without them. Invest the time to write solid assumptions so you have a good foundation for your financial forecast.<\/p>\n<p align=\"center\"><button class=\"btn-right\" onclick=\" window.open('https:\/\/businessplantemplate.growthink.com\/plan\/?utm_source=developing-realistic-financial-assumptions-your-business-plan&#038;utm_medium=growthink&#038;utm_campaign=seo','_blank')\">Download our Ultimate Business Plan Template here-><\/button><\/p>\n<h2><b>What are Financial Assumptions?<\/b><\/h2>\n<p>Financial assumptions are the guidelines you give your <a href=\"https:\/\/www.growthink.com\/products\/business-plan-template\" rel=\"noopener\" target=\"_blank\">business plan<\/a> to follow. They can range from financial forecasts about costs, revenue, return on investment, and operating and startup expenses. Basically, financial assumptions serve as a forecast of what your business will do in the future. You need to include them so that anyone reading your plan will have some idea of how accurate its projections may be.<\/p>\n<p>Of course, your financial assumptions should accurately reflect the information you&#8217;ve given in your business plan and they should be reasonably accurate. You need to keep this in mind when you make them because if you make outlandish claims, it will make people less likely to believe any part of your business plan including other financial projections that may be accurate.<\/p>\n<p>That&#8217;s why you always want to err on the side of caution when it comes to financial assumptions for your business plan. The more conservative your assumptions are the more likely you&#8217;ll be able to hit them, and the less likely you&#8217;ll be off by so much that people will ignore everything in your plan.<\/p>\n<p>&nbsp;<\/p>\n<h3><b>Why are Financial Assumptions Important?<\/b><\/h3>\n<p>Many investors skip straight to the financial section of your business plan. It is critical that your assumptions and projections in this section be realistic. Plans that show penetration, operating margin, and revenues per employee figures that are poorly reasoned; internally inconsistent, or simply unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well-reasoned financial assumptions and projections communicate operational maturity and credibility.<\/p>\n<p>For instance, if the company is categorized as a networking infrastructure firm, and the business plan projects 80% operating margins, investors will raise a red flag. This is because investors can readily access the operating margins of publicly-traded networking infrastructure firms and find that none have operating margins this high.<\/p>\n<p>As much as possible, the financial assumptions should be based on actual results from your or other firms. As the example above indicates, it is fairly easy to look at a public company\u2019s operating margins and use these margins to approximate your own. Likewise, the business plan should base revenue growth on other firms.\u00a0<\/p>\n<p>Many firms find this impossible, since they believe they have a breakthrough product in their market, and no other company compares. In such a case, base revenue growth on companies in other industries that have had breakthrough products. If you expect to grow even faster than they did (maybe because of new technologies that those firms weren\u2019t able to employ), you can include more aggressive assumptions in your business plan as long as you explain them in the text.<\/p>\n<p>The financial assumptions can either enhance or significantly harm your business plan\u2019s chances of assisting you in the capital-raising process. By doing the research to develop realistic assumptions, based on actual results of your or other companies, the financials can bolster your firm\u2019s chances of winning investors. As importantly, the more realistic financials will also provide a better roadmap for your company\u2019s success.<\/p>\n<p><center><\/p>\n<div class=\"relatedpost\" style=\" width:85%; background-color: #e6e6ff ;  padding-bottom:0px\">\n<p id=\u201ccta\u201d><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"16\" height=\"16\" fill=\"currentColor\" class=\"bi bi-exclamation-circle-fill\" viewBox=\"0 0 16 16\">\n  <path d=\"M16 8A8 8 0 1 1 0 8a8 8 0 0 1 16 0zM8 4a.905.905 0 0 0-.9.995l.35 3.507a.552.552 0 0 0 1.1 0l.35-3.507A.905.905 0 0 0 8 4zm.002 6a1 1 0 1 0 0 2 1 1 0 0 0 0-2z\"\/>\n<\/svg>   <b>Finish Your Business Plan Today!<\/b><\/p>\n<p>If you\u2019d like to quickly and easily complete your business plan, download <a href=\"https:\/\/businessplantemplate.growthink.com\/plan\/?utm_source=developing-realistic-financial-assumptions-your-business-plan&#038;utm_medium=growthink&#038;utm_campaign=seo\" target=\"_blank\" re=\"nofollow\">our Ultimate Business Plan Template<\/a> and complete your plan and financial model in hours.<\/div>\n<p><\/center><\/p>\n<h3><b>Financial Assumptions vs Projections<\/b><\/h3>\n<p>Financial Assumptions \u2013 Estimates of future financial results that are based on historical data, an understanding of the business, and a company\u2019s operational strategy.<\/p>\n<p>Financial Projections \u2013 Estimates of future financial results that are calculated from the assumptions factored into the financial model.<\/p>\n<p>The assumptions are your best guesses of what the future holds; the financial projections are numerical versions of those assumptions.\u00a0<\/p>\n<p>&nbsp;<\/p>\n<h2><b>Key Assumptions By Financial Statement<\/b><\/h2>\n<p>Below you will find a list of the key business assumptions by the financial statement:<\/p>\n<h3><b>Income Statement<\/b><\/h3>\n<p>The income statement assumptions should include revenue, cost of goods sold, operating expenses, and depreciation\/amortization, as well as any other line items that will impact the income statement.<\/p>\n<p>When you are projecting future operating expenses, you should project these figures based on historical information and then adjust them as necessary with the intent to optimize and\/or minimize them.<\/p>\n<h3><b>Balance Sheet<\/b><\/h3>\n<p>The balance sheet assumptions should include assets, liabilities, and owner\u2019s equity, as well as any other line items that will impact the balance sheet. One of the most common mistakes is not including all cash inflows and outflows.<\/p>\n<h3><b>Cash Flow Statement<\/b><\/h3>\n<p>Cash flow assumptions should be made, but they do not impact the balance sheet or income statement until actually received or paid. You can include the cumulative cash flow assumption on the financial model to be sure it is included with each year&#8217;s projections.\u00a0<\/p>\n<p>The cumulative cash flow assumption is useful for showing your investors and potential investors how you will spend the money raised. This line item indicates how much of the initial investment will be spent each year, which allows you to control your spending over time.<\/p>\n<h3><b>Notes to Financial Statements<\/b><\/h3>\n<p>The notes to financial statements should explain assumptions made by management regarding accounting policies, carrying value of long-lived assets, goodwill impairment testing, contingencies, and income taxes. It is important not only to list these items within the notes but also to provide a brief explanation.<\/p>\n<p><center><\/p>\n<div class=\"greyBG\" style=\"margin-top: 20px; margin-bottom: 20px;\"><strong>Quickly and easily complete your business plan with <a href=\"https:\/\/businessplantemplate.growthink.com\/plan\/?utm_source=developing-realistic-financial-assumptions-your-business-plan&#038;utm_medium=growthink&#038;utm_campaign=seo\" target=\"_blank\" re=\"nofollow\">our Ultimate Business Plan Template<\/a> and complete your plan and financial model in just hours.<\/div>\n<p><\/center><\/strong><\/p>\n<h2 style=\"padding-top: 15px;\"><b>What are the Assumptions Needed in Preparing a Financial Model?<\/b><\/h2>\n<p>In our article on \u201c<a href=\"https:\/\/www.growthink.com\/business-plan-financial-projections\">How to Create Financial Projections for Your Business Plan<\/a>,\u201d we list the 25+ most common assumptions to include in your financial model. Below are a few of them:<\/p>\n<p>For EACH key product or service you offer:<\/p>\n<ul>\n<li aria-level=\"1\">What is the number of units you expect to sell each month?<\/li>\n<li aria-level=\"1\">What is your expected monthly sales growth rate?<\/li>\n<\/ul>\n<p>For EACH subscription\/membership you offer:<\/p>\n<ul>\n<li aria-level=\"1\">What is the monthly\/quarterly\/annual price of your membership?<\/li>\n<li aria-level=\"1\">How many members do you have now or how many members do you expect to gain in the first month\/quarter\/year?<\/li>\n<\/ul>\n<p>Cost Assumptions<\/p>\n<ul>\n<li aria-level=\"1\">What is your monthly salary? What is the annual growth rate in your salary?<\/li>\n<li aria-level=\"1\">What is your monthly salary for the rest of your team? What is the expected annual growth rate in your team\u2019s salaries?<\/li>\n<li aria-level=\"1\">What is your initial monthly marketing expense? What is the expected annual growth rate in your marketing expense?<\/li>\n<\/ul>\n<p>Assumptions related to Capital Expenditures, Funding, Tax and Balance Sheet Items<\/p>\n<ul>\n<li aria-level=\"1\">How much money do you need for capital expenditures in your first year\u00a0 (to buy computers, desks, equipment, space build-out, etc.)<\/li>\n<li aria-level=\"1\">How much other funding do you need right now?<\/li>\n<li aria-level=\"1\">What is the number of years in which your debt (loan) must be paid back<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><b>Properly Preparing Your Financial Assumptions<\/b><\/h2>\n<p>So how do you prepare your financial assumptions? It&#8217;s recommended that you use a spreadsheet program like Microsoft Excel. You&#8217;ll need to create separate columns for each line item and then fill in the cells with the example information described below.<\/p>\n<h3><b>Part 1 \u2013 Current Financials<\/b><\/h3>\n<p>Year to date (YTD) units sold and units forecast for next year. This is the same as YTD revenue, but you divide by the number of days in the period to get an average daily amount. If your plan includes a pro forma financial section, your financial assumptions will be projections that are consistent with the pro forma numbers.<\/p>\n<h3><b>Part 2 \u2013 Financial Assumptions<\/b><\/h3>\n<p>Estimated sales forecasts for next year by product or service line, along with the associated margin. List all major items in this section, not just products. For instance, you might include &#8220;Professional Services&#8221; as a separate item, with revenue and margin information.<\/p>\n<p>List the number of employees needed to support this level of business, including yourself or key managers, along with your cost assumptions for compensation, equipment leasing (if applicable), professional services (accounting\/legal\/consultants), and other line items.<\/p>\n<h3><b>Part 3 \u2013 Projected Cash Flow Statement and Balance Sheet<\/b><\/h3>\n<p>List all key assumptions like: sources and uses of cash, capital expenditures, Planned and Unplanned D&amp;A (depreciation &amp; amortization), changes in operating assets and liabilities, along with those for investing activities. For example, you might list the assumptions as follows:<\/p>\n<ul>\n<li aria-level=\"1\">Increases in accounts receivable from customers based on assumed sales levels<\/li>\n<li aria-level=\"1\">Decreases in inventory due to increased sales<\/li>\n<li aria-level=\"1\">Increases in accounts payable due to higher expenses for the year<\/li>\n<li aria-level=\"1\">Decrease in unearned revenue as evidenced by billings received compared with those projected (if there is no change, enter 0)<\/li>\n<li aria-level=\"1\">Increase\/decrease in other current assets due to changes in business conditions<\/li>\n<li aria-level=\"1\">Increase\/decrease in other current liabilities due to changes in business conditions<\/li>\n<li aria-level=\"1\">Increases in long term debt (if necessary)<\/li>\n<li aria-level=\"1\">Cash acquired from financing activities (interest expense, dividends paid, etc.)<\/li>\n<\/ul>\n<p>You make many of these assumptions based on your own experience. It is also helpful to look at the numbers for public companies and use those as a benchmark.<\/p>\n<p><center><\/p>\n<div class=\"relatedpost\" style=\" width:85%; background-color: #e6e6ff ;  padding-bottom:0px\">\n<p id=\u201ccta\u201d><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"16\" height=\"16\" fill=\"currentColor\" class=\"bi bi-exclamation-circle-fill\" viewBox=\"0 0 16 16\">\n  <path d=\"M16 8A8 8 0 1 1 0 8a8 8 0 0 1 16 0zM8 4a.905.905 0 0 0-.9.995l.35 3.507a.552.552 0 0 0 1.1 0l.35-3.507A.905.905 0 0 0 8 4zm.002 6a1 1 0 1 0 0 2 1 1 0 0 0 0-2z\"\/>\n<\/svg>   <b>Finish Your Business Plan Today!<\/b><\/p>\n<p>If you\u2019d like to quickly and easily complete your business plan, download <a href=\"https:\/\/businessplantemplate.growthink.com\/plan\/?utm_source=developing-realistic-financial-assumptions-your-business-plan&#038;utm_medium=growthink&#038;utm_campaign=seo\" target=\"_blank\" re=\"nofollow\">our Ultimate Business Plan Template<\/a> and complete your plan and financial model in hours.<\/div>\n<p><\/center><\/p>\n<h3><b>Part 4 \u2013 Future Financials<\/b><\/h3>\n<p>This section is for more aggressive financial projections that can be part of your plan, but which you cannot necessarily prove at the present time. This could include:<\/p>\n<ul>\n<li aria-level=\"1\">A projection of earnings per share (EPS) using the assumptions above and additional information such as new products, new customer acquisition, expansion into new markets<\/li>\n<li aria-level=\"1\">New product lines or services to be added in the second year. List the projected amount of revenue and margin associated with these items<\/li>\n<li aria-level=\"1\">A change in your gross margins due to a specific initiative you are planning, such as moving from a high volume\/low margin business to a low volume\/high margin business<\/li>\n<\/ul>\n<h3><b>Part 5 \u2013 Calculations<\/b><\/h3>\n<p>Calculate all critical financial numbers like:<\/p>\n<ul>\n<li aria-level=\"1\">Cash flow from operating activities (CFO)<\/li>\n<li aria-level=\"1\">Operating income or loss (EBITDA)\u00a0 (earnings before interest, taxes, depreciation, and amortization)<\/li>\n<li aria-level=\"1\">EBITDA margin (gross profits divided by revenue less cost of goods sold)<\/li>\n<li aria-level=\"1\">Adjusted EBITDA (CFO plus other cash changes like capital expenditure, deferred taxes, non-cash stock compensation, and other items)<\/li>\n<li aria-level=\"1\">Net income or loss before tax\u00a0 (EBT)<\/li>\n<li aria-level=\"1\">Cash from financing activities (increase\/decrease in debt and equity)<\/li>\n<\/ul>\n<h3><b>Part 6 \u2013 Sensitivity Analysis<\/b><\/h3>\n<p>If your assumptions are reasonably accurate, you will have a column for &#8220;base case&#8221; and a column for &#8220;worst case.&#8221;\u00a0 If you have a lot of variables with different possible outcomes, just list the potential range in one cell.<\/p>\n<p>Calculate both EBITDA margins and EPS ranges at each level.<\/p>\n<h3><b>Part 7 \u2013 Section Highlights<\/b><\/h3>\n<p>Just list the two or three key points you want to make. If it is hard to distill them down, you need to go back and work on Part 3 until it makes sense.<\/p>\n<h3><b>Part 8 \u2013 Financial Summary<\/b><\/h3>\n<p>Include all the key numbers from your assumptions, section highlights, and calculations. In one place, you can add up CFO, EPS at different levels, and EBITDA margins under both base case and worst-case scenarios to give a complete range for each assumption.<\/p>\n<h2><b>Conclusion<\/b><\/h2>\n<p>The key to a successful business plan is being able to clearly communicate your financial assumptions. Be sure to include your assumptions in the narrative of your plan so you can clearly explain why you are making them. If you are using the business plan for financing or other purposes, it may also be helpful to include a separate &#8220;financials&#8221; section so people unfamiliar with your industry can quickly find and understand key information.  A <a href=\"https:\/\/plan.planbuildr.com\/business-plan\/new\" rel=\"noopener\" target=\"_blank\">business plan generator<\/a> can help you in creating your financial projections.<\/p>\n<div class=\"bluepost\">\n<p id=\"greencta\"><strong>Finish Your Business Plan in 1 Day!<\/strong><\/p>\n<p>Don\u2019t you wish there was a faster, easier way to finish your business plan?<\/p>\n<p>With our Ultimate Business Plan Template you can finish your plan in just 8 hours or less!<\/p>\n<p><a href=\"https:\/\/businessplantemplate.growthink.com\/plan\/?utm_source=developing-realistic-financial-assumptions-your-business-plan&#038;utm_medium=growthink&#038;utm_campaign=seo\" target=\"_blank\" re=\"nofollow\">Click here to finish your business plan today.<\/a><\/div>\n<p>&nbsp;<\/p>\n<h2>OR, Let Us Develop Your Plan For You<\/h2>\n<p>Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.<\/p>\n<p><a href=\"\/business-plan\">Click here<\/a> to see how our professional <a href=\"\/business-plan\">business plan writers<\/a> can create your business plan for you.<\/p>\n<p>If you just need a financial model for your business plan, learn more about our <a href=\"https:\/\/www.growthink.com\/financial-modeling\">financial modeling services<\/a>.<br \/>\n&nbsp;<\/p>\n<h2 style=\"padding-top: 130px;  margin-top: -130px;\"><b>Other Resources for Writing Your Business Plan<\/b><\/h2>\n<li><a href=\"https:\/\/www.growthink.com\/businessplan\/help-center\/business-plan-executive-summary-tips-killer-executive-summary\">How to Write an Executive Summary<\/a><\/li>\n<li><a href=\"https:\/\/www.growthink.com\/products\/business-plan-template\/company-overview\">How to Expertly Write the Company Description in Your Business Plan<\/a><\/li>\n<li><a href=\"https:\/\/www.growthink.com\/businessplan\/help-center\/industry-analysis-business-plan\">How to Write the Market Analysis Section of a Business Plan<\/a><\/li>\n<li><a href=\"https:\/\/www.growthink.com\/businessplan\/help-center\/analyzing-customers-your-business-plan\">The Customer Analysis Section of Your Business Plan<\/a><\/li>\n<li><a href=\"https:\/\/www.growthink.com\/businessplan\/help-center\/business-planning-competition-good\">Completing the Competitive Analysis Section of Your Business Plan<\/a><\/li>\n<li><a href=\"https:\/\/www.growthink.com\/businessplan\/help-center\/business-plan-writing-presenting-management-team\">How to Write the Management Team Section of a Business Plan + Examples<\/a><\/li>\n<li><a href=\"https:\/\/www.growthink.com\/business-plan-financial-projections\">How to Create Financial Projections for Your Business Plan<\/a><\/li>\n<li><a href=\"https:\/\/www.growthink.com\/businessplan\/help-center\/business-plan-appendix\">Everything You Need to Know about the Business Plan Appendix<\/a><\/li>\n<li><a href=\"https:\/\/www.growthink.com\/businessplan\/help-center\/business-plan-conclusion\">Business Plan Conclusion: Summary &amp; Recap<\/a><\/li>\n<p>&nbsp;<\/p>\n<h2 style=\"padding-top: 20px;\">Other Helpful Business Plan Articles &#038; Templates<\/h2>\n<div class=\"free-business-plan-articles-flex\">\n<div class=\"column\"><a href=\"\/products\/business-plan-template\" title=\"Business Plan Template &#038; Guide for Small Businesses\"><img decoding=\"async\" class=\"aligncenter\" style=\"height: 135px;\" src=\"https:\/\/www.growthink.com\/wp-content\/uploads\/business-plan-template-growthink.png\" target=\"_blank\" alt=\"Download a Free Business Plan Template\" width=\"300\"\/>Download a Free Business Plan Template<\/a><\/div>\n<div class=\"column\"><a href=\"\/how-to-write-a-business-plan\" title=\"How to Write a Great Business Plan\"><img decoding=\"async\" class=\"aligncenter\" src=\"\/wp-content\/uploads\/how-to-write-a-business-plan-to-secure-funding-thumb.png\" target=\"_blank\" alt=\"How to Make a Successful Business Plan\" width=\"300\"\/>How to Make a Successful Business Plan<\/a><\/div>\n<div class=\"column\"><a href=\"\/content\/how-write-business-plan-raising-venture-capital\" title=\"How To Write A Venture Capital Business Plan With Template\"><img decoding=\"async\" class=\"aligncenter\" src=\"\/wp-content\/uploads\/How-to-Write-Business-Plan-Thumbnail.jpg\" target=\"_blank\" alt=\"How To Write A Venture Capital Business Plan With Template\" width=\"300\"\/>How To Write A Venture Capital Business Plan With Template<\/a><\/div>\n<div class=\"column\"><a href=\"\/business-plan\" title=\"Expert Business Plan Consultant\"><img decoding=\"async\" class=\"aligncenter\" src=\"\/wp-content\/uploads\/business-plan-consultant-thumb.png\" target=\"_blank\" alt=\"Expert Business Plan Consultants\" width=\"300\"\/>Growthink&#8217;s Expert Business Plan Consultants<\/a><\/div>\n<div class=\"column\"><a href=\"\/businessplan\/help-center\/business-plan-layout-how-design-your-plan\" title=\"The Perfect Business Plan Outline for a Great Plan\"><img decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/www.growthink.com\/wp-content\/uploads\/Business-Plan-Layout-How-to-Design-Your-Plan-Thumbnail.jpg\" target=\"_blank\" alt=\"The Perfect Business Plan Layout for a Great Plan\" width=\"300\"\/>The Perfect Business Plan Layout for a Great Plan<\/a><\/div>\n<div class=\"column\"><a href=\"\/businessplan\/help-center\/business-plan-format-how-structure-your-business-plan\" title=\"Use This Business Plan Format to Expertly Write Your Plan\"><img decoding=\"async\" class=\"aligncenter\" src=\"\/wp-content\/uploads\/Business-Plan-Format-Thumb.png\" target=\"_blank\" alt=\"Use This Business Plan Structure to Expertly Write Your Plan\" width=\"300\"\/>Use This Business Plan Structure to Expertly Write Your Plan<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Financial assumptions are an integral part of a well-written business plan. You can&#8217;t accurately forecast the future without them. Invest the time to write solid assumptions so you have a good foundation for your financial forecast. Download our Ultimate Business Plan Template here-> What are Financial Assumptions? Financial assumptions are the guidelines you give your [&hellip;]<\/p>\n","protected":false},"author":29277,"featured_media":15456,"parent":8361,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"class_list":["post-8438","page","type-page","status-publish","has-post-thumbnail","hentry"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.7 (Yoast SEO v26.7) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Financial Assumptions &amp; Your Business Plan<\/title>\n<meta name=\"description\" content=\"Use our guide to learn how to create the right financial assumptions for your business and improve the financial planning for your business.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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