The ROI calculation for business plans can be difficult to get right if you're working with software or a template that doesn't have the right calculations embedded to produce a return on investment output. It can also get confusing if you're not sure whether the ROI you're showing fits with “industry standard†or will be appealing to your target investors based on other ventures they have in their portfolio. You can do some research on what the typical payback scenarios are for your industry or technology sector, but there will always be a little bit of leeway in the “ideal ROI†depending on the investor, your service offering, etc. Some questions to consider include these:
• What is the timeline for investment you envision?
• What is the prevailing P/E of similar companies in the public domain?
• What amount of capital do you need?
• Are there subsequent infusions or other funding sources as well?
• What sort of dilution will occur if there's another investment round?
The ROI calculation can be done quite simply by taking the Year 5 revenues you project and multiplying that figure by the prevailing (average) price to earnings ratio of companies in your market space, then dividing by the initial investment to obtain a simple calculation of the share. That way, a reviewer can see up front what equity percentage you think you'll relinquish in exchange for the money you need to grow the venture as planned. (Remember that all business funding negotiations are likely to involve a lot of back and forth, but it's still best to put the details front and center for review.) MasterPlans can make the financial model for you to review your ROI to give advice on whether it seems realistic. Call 877-453-2011 to talk with a consultant today! (877) 453-2011.
