Did you search ROI on business plan trying to figure out what the likely return on investment is for your business investors or vested stakeholders? This is an excellent question – it's very important and often misunderstood. The statement that your business plan makes about the equity share an investor will receive in exchange for their investment takes seed with the amount of capital your pro forma shows them giving you in the beginning. From there, the key metrics revolve around the valuation your company would likely receive if offered for sale, the net profit figure you project for the end of your model, and the “rate of return” you think the investor might be satisfied with from the get-go. In essence, the core questions are these:
• How much capital are you seeking up front?
• Can your business survive without an additional infusion of money?
• What is the net profit you project for your business in Year 5?
• What are the most common price to earnings (P/E) ratios for companies in your industry?
• What rate of return will your investor expect over the life of the investment?
Your business plan will need to show at least a 40% year-over-year rate of return on capital invested for five years. In some cases, depending on your audience, your business concept, and your ongoing capital needs, you may get away with a 30% rate of return – in the alternative, high-risk ventures (or stickler investors) might demand a 50% rate or more. No matter what your approach, explain what advantages you have that competing businesses in the space do not, and make it clear why this is a sound investment. You'll also need a management section, full personnel plan, and a complete start-up summary showing how you'll spend the seed capital. The complete financial model requires five years of revenues and expenses – necessary tables are start-up, revenue forecast, break-even, profit and loss statement, the cash flow, a balance sheet, and a monthly set of data for the first year. ROI cannot be determined accurately without these elements. MasterPlans has created custom models for investment for companies at all stages of growth. Call a consultant today at (877) 453-2011.
