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Business Model and Financial Projections
Critical components of your business plan include the revenue model, a description of the cost structure and projections. The revenue model distinguishes each income stream and the cost structure details the expenses associated with those income streams. The revenue and cost schedules should be forecasted into the future to construct a set of projections, which should show margins, EBITDA and key profitability metrics (e.g., profitability by product line, costs as percentage of sales, etc.).
You should include as part of your presentation information to support the business model such as: “We're going to sell this many products to this number of clients or partners for this amount of money, resulting in a gross margin of this. Of those gross profits, this is how much we can bring down to the bottom line.
|Business Model Tips|
- Show potential investors a clear, accurate income statement and cash flow statement. Don’t attempt to hide expenses—venture capitalists will find them
- The best way to help an investor understand how the basic business model works is to provide them with the unit economics
- Discuss your revenue streams in terms of price and volume and what combination of the two components it will take to reach your projections
- Depending on the stage of your company, potential investors may want to see a balance sheet
- Consider using a projected cash shortfall to transition into a discussion about the proposed use of funds