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Financial Assumptions and Your Business Plan

Written by Dave Lavinsky

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Financial assumptions are an integral part of a well-written business plan. You can’t accurately forecast the future without them. Invest the time to write solid assumptions so you have a good foundation for your financial forecast.

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What are Financial Assumptions?

Financial assumptions are the guidelines you give your business plan 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.

Of course, your financial assumptions should accurately reflect the information you’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.

That’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’ll be able to hit them, and the less likely you’ll be off by so much that people will ignore everything in your plan.

Why are Financial Assumptions Important?

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.

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.

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’s operating margins and use these margins to approximate your own. Likewise, the business plan should base revenue growth on other firms. 

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’t able to employ), you can include more aggressive assumptions in your business plan as long as you explain them in the text.

The financial assumptions can either enhance or significantly harm your business plan’s 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’s chances of winning investors. As importantly, the more realistic financials will also provide a better roadmap for your company’s success.

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Financial assumptions vs projections.

Financial Assumptions – Estimates of future financial results that are based on historical data, an understanding of the business, and a company’s operational strategy.

Financial Projections – Estimates of future financial results that are calculated from the assumptions factored into the financial model.

The assumptions are your best guesses of what the future holds; the financial projections are numerical versions of those assumptions. 

Key Assumptions By Financial Statement

Below you will find a list of the key business assumptions by the financial statement:

Income Statement

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.

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.

Balance Sheet

The balance sheet assumptions should include assets, liabilities, and owner’s 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.

Cash Flow Statement

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’s projections. 

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.

Notes to Financial Statements

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.

What are the Assumptions Needed in Preparing a Financial Model?

In our article on “ How to Create Financial Projections for Your Business Plan ,” we list the 25+ most common assumptions to include in your financial model. Below are a few of them:

For EACH key product or service you offer:

  • What is the number of units you expect to sell each month?
  • What is your expected monthly sales growth rate?

For EACH subscription/membership you offer:

  • What is the monthly/quarterly/annual price of your membership?
  • How many members do you have now or how many members do you expect to gain in the first month/quarter/year?

Cost Assumptions

  • What is your monthly salary? What is the annual growth rate in your salary?
  • What is your monthly salary for the rest of your team? What is the expected annual growth rate in your team’s salaries?
  • What is your initial monthly marketing expense? What is the expected annual growth rate in your marketing expense?

Assumptions related to Capital Expenditures, Funding, Tax and Balance Sheet Items

  • How much money do you need for capital expenditures in your first year  (to buy computers, desks, equipment, space build-out, etc.)
  • How much other funding do you need right now?
  • What is the number of years in which your debt (loan) must be paid back

Properly Preparing Your Financial Assumptions

So how do you prepare your financial assumptions? It’s recommended that you use a spreadsheet program like Microsoft Excel. You’ll need to create separate columns for each line item and then fill in the cells with the example information described below.

Part 1 – Current Financials

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.

Part 2 – Financial Assumptions

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 “Professional Services” as a separate item, with revenue and margin information.

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.

Part 3 – Projected Cash Flow Statement and Balance Sheet

List all key assumptions like: sources and uses of cash, capital expenditures, Planned and Unplanned D&A (depreciation & amortization), changes in operating assets and liabilities, along with those for investing activities. For example, you might list the assumptions as follows:

  • Increases in accounts receivable from customers based on assumed sales levels
  • Decreases in inventory due to increased sales
  • Increases in accounts payable due to higher expenses for the year
  • Decrease in unearned revenue as evidenced by billings received compared with those projected (if there is no change, enter 0)
  • Increase/decrease in other current assets due to changes in business conditions
  • Increase/decrease in other current liabilities due to changes in business conditions
  • Increases in long term debt (if necessary)
  • Cash acquired from financing activities (interest expense, dividends paid, etc.)

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.

Part 4 – Future Financials

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:

  • 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
  • New product lines or services to be added in the second year. List the projected amount of revenue and margin associated with these items
  • 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

Part 5 – Calculations

Calculate all critical financial numbers like:

  • Cash flow from operating activities (CFO)
  • Operating income or loss (EBITDA)  (earnings before interest, taxes, depreciation, and amortization)
  • EBITDA margin (gross profits divided by revenue less cost of goods sold)
  • Adjusted EBITDA (CFO plus other cash changes like capital expenditure, deferred taxes, non-cash stock compensation, and other items)
  • Net income or loss before tax  (EBT)
  • Cash from financing activities (increase/decrease in debt and equity)

Part 6 – Sensitivity Analysis

If your assumptions are reasonably accurate, you will have a column for “base case” and a column for “worst case.”  If you have a lot of variables with different possible outcomes, just list the potential range in one cell.

Calculate both EBITDA margins and EPS ranges at each level.

Part 7 – Section Highlights

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.

Part 8 – Financial Summary

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.

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 “financials” section so people unfamiliar with your industry can quickly find and understand key information.

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With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

It includes a full financial model. It lists all the key financial assumptions and you simply need to plug in answers to the assumptions and your complete financial projections (income statement, balance sheet, cash flow statement, charts and graphs) are automatically generated!

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Click here to see how our professional business plan writers can create your business plan for you.

If you just need a financial model for your business plan, learn more about our financial modeling services .  

Other Resources for Writing Your Business Plan

  • How to Write an Executive Summary
  • How to Expertly Write the Company Description in Your Business Plan
  • How to Write the Market Analysis Section of a Business Plan
  • The Customer Analysis Section of Your Business Plan
  • Completing the Competitive Analysis Section of Your Business Plan
  • How to Write the Management Team Section of a Business Plan + Examples
  • How to Create Financial Projections for Your Business Plan
  • Everything You Need to Know about the Business Plan Appendix
  • Business Plan Conclusion: Summary & Recap

Other Helpful Business Plan Articles & Templates

Download a Free Business Plan Template

Plan Projections

ideas to numbers .. simple financial projections

Home > Business Plan > Business Plan Assumptions

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Business Plan Assumptions

Financial projections business plan assumptions.

All financial projections are based on business plan assumptions. Listed below is a selection of the most important assumptions which need to be considered and decided upon when using the Financial Projections Template to produce the financials section of your business plan.

Business Plan Assumptions List

Inflation rates and foreign exchange rates, sales and marketing, cash collection, distribution, research and development, fixed assets, gross margin, operating expenses, depreciation.

You need to prepare a business plan assumptions sheet as part of your plan, however, the important point to remember is that the assumptions should be kept simple and to a minimum, to avoid over complicating the financial projection. Remember this is planning not accounting. The calculation of key assumptions is further discussed in our financial projection assumptions post.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Questioning Key Assumptions in Your Business Plan

Asking the hard questions now will save you time and money in the future

Amanda McCormick is an entrepreneur, marketing consultant, and content strategist who has worked with arts and government organizations, including the New York City Ballet. She is the co-founder of a small marketing agency focused on arts and media companies.

assumptions for a business plan

Is There a Need for Your Product or Service?

Is there a significant customer base, can your business turn a profit, are you the right person to run your business, is your business funded appropriately, the swot analysis, frequently asked questions (faqs).

The Balance / Getty Images

Constructing a business plan is all about looking at and confronting assumptions. Consider the five following key assumptions, and you'll have a business plan—and future—in which you can be confident.

Key Takeaways

  • A business plan is a document that helps a business communicate and organize its plans and strategies for the future.
  • Sufficient market research is perhaps the most important part of starting a business.
  • A SWOT analysis clarifies the business' strengths, weaknesses, opportunities, and threats.
  • Asking yourself if you have the expertise to run all aspects of the business and whether or not you have sufficient capital is also important.

It's an obvious question, but many entrepreneurs overlook it. Knowing that there's a need for your product is different than having a hunch or a feeling. How do you know the difference? You do the research to find out. First, look at the competition. Are there others who have a similar offering and are they profitable?

Maybe you are breaking new ground -- that's no excuse for saying "there is no competition." Look around for evidence that your proposed business fulfills a concrete need. Without evidence to validate the need for your business, your business plan will fail.

As of December 2021, there were 32,540,953 million small businesses in the U.S.

The second assumption that's important to look at in your business planning preparation is whether or not there is a significant customer base for the business you are proposing. It can be a highly subjective question, as there are a number of successful niche businesses that serve small markets quite profitably. You are well-served to look at the concrete size of a potential market and to assign real dollar values to its potential.

Once you can decide that A) there is a need for your business and B) there is a sizable market for it, you are on solid ground to establish your business's potential profitability. But don't pluck numbers from the air.

You'll need to figure out what your startup costs are, as well as ongoing business-related expenses. You'll need to figure out a pricing structure that your customers will pay and will generate enough cash flow to keep the business running. After generating a set of realistic financial projections, you'll have a solid picture of your business' profit potential.

You believe in your business. You eat, sleep, and breathe it. But you're still going to have to make the case why you are uniquely qualified to start and run the business. As CEO, you'll also need to demonstrate the ability to delegate and find employees to complement your weaker points. First, know yourself, and second, be able to find the right people to bring into your management structure.

Financial projections are the place in the business plan that investors will flip to first. They want to know if you can understand the financial bottom line of running a business, or if your vision is unrealistic. Demonstrate in your business plan that you have a realistic startup budget, and you don't expect revenue to pour in within the first few months magically. Show that you have sufficient capitalization to run the business to break even.

Lack of sufficient capital is cited again and again as one of the top reasons why businesses fail.

A SWOT analysis , which stands for Strengths, Weaknesses, Opportunities, and Threats and is a popular strategic framework for business planners, is a great tool for questioning assumptions. The first two items refer to qualities that are internal to the business. The second two items are external factors. Consider the following in questioning your assumptions in writing a business plan around your fledgling operation:

  • What does this company do well?
  • What are our assets?
  • What expert or specialized knowledge does the company have?
  • What advantages do we have over competitors?
  • What makes us unique?
  • What resources do we lack?
  • Where can we improve?
  • What parts of the business are not profitable?
  • What costs us the most time and money?

Opportunities

  • What has the competition missed?
  • What are the emerging needs of the customer?
  • How can we use technology to cut costs and enhance reach?
  • Are there new market segments to exploit?
  • What are our competitors doing well?
  • How do larger forces in the economy affecting our business?
  • What is happening in the industry?

What is a SWOT analysis?

A SWOT analysis is a popular strategic framework used by business owners. It is performed throughout a business' existence and asks about its Strengths, Weaknesses, Opportunities, and Threats.

What percent of businesses fail within the first year?

According to data from the Bureau of Labor Statistics, around 1 in 5 (18.4%) of businesses fail within the first year and nearly half (49.7%) fail in the first five years.

Small Business Association. " Frequently Asked Questions ."

Small Business Association. " Selecting a Business That Fits ."

Bureau of Labor Statistics. " Survival of Private Sector Establishments by Opening Year ."

What Are the Key Assumptions of a Business Plan?

by Mariel Loveland

Published on 28 May 2019

We make more assumptions in business plans than you might realize. It is, after all, a plan for something you’re going to do, not something that’s already happened. In order to have the most successful business plan, you need to have a few key assumptions that point to certain areas of your business and how it’s going to function. These assumptions attract potential investors, help secure bank loans and help put you on a path to having a profitable venture.

Before making serious decisions about your startup, you must examine the key assumptions in your business plan.

Key Assumptions Definition

In a business plan, a key assumption’s definition is basically the most important who, what, when and how you need to run your business. Every business plan is filled with assumptions. We can’t accurately say whether a business will for sure be profitable or that you’ll be able to pay off your loan in some number of years, but you can make a really educated assumption.

The most important of these assumptions are called key assumptions, and potential investors usually need to see this information before they decide to put in money. Business plan assumptions examples range from financing, consumer base and profitability to management and resources.

Key Assumption 1: Finances

One of the business plan assumptions examples is finances. Do you have the funding to run your company until it becomes profitable? How are you going to pay for all of the expensive things a business requires – this includes office rent, salaries, insurance, products and marketing.

It’s extremely important to include financial projections in your business plan to help convince investors or banks that your company has a realistic path to success. It doesn’t have to be immediate. Companies often take years to turn a profit, and one of the largest mistakes that business owners make is assuming that sales alone will support business operations.

Your business will be most attractive to potential investors if you have enough capital to run until you think you’ll break even. As a key assumption, you should disclose investment figures and loan amounts in your business plan.

Key Assumptions 2: Consumer Base

The key assumptions definition is assumptions that are key (i.e. your business plan is a failure without them). When it comes down to it, nothing is more important to a business than having actual customers. Who are you generating sales from? Are you a "b2b" business (selling to other business) or "b2c" (selling directly to individual customers). Who are the people you’re servicing?

As one of the key assumptions in a business plan, your customer base must be outlined carefully. Yes, a niche business can be successful, but you should really show that there’s enough of a customer base to turn a profit. You should also note the potential to tap into other markets or expand to different types of consumers.

Key Assumptions 3: Need

Your company isn’t worth anything if nobody actually needs what you’re offering. Yes, you might have a certain consumer base, but investors need to know why people will choose your product over others. This is one of the key assumptions in a business plan that might just be the most important of all.

As one of the many business plan assumptions examples, need might require the most research. You’re going to have to look into your competitors – be it locally or nationally – and figure out what makes your product different. Outline the need and how your product fills that hole. If you can’t figure this out, your business will undoubtedly fail.

Key Assumptions 4: Resources

You can’t run a business if you’re short on resources. That’s why this is a key assumption that should be worked into every business plan. You need to make sure you have the resources – whether that’s access to qualified employees or specialized equipment – before securing a loan or funding. No one is going to want to invest in a company that can’t get off the ground.

One of the most dangerous assumptions for potential startup owners is believing you’ll have access to top talent. In reality, that talent might not want to work for you in favor of a fully-funded tech startup with a fat paycheck and some history of proven success. Keep an eye out for talent pools and try to secure some talent before approaching investors.

Key Assumptions 5: Profitability

We might really believe in our products and the value they give our communities and consumer base, but investors really only care about the bottom line: can you turn a profit? Outline this clearly in your business plan. How many months do you think it will take to start becoming profitable. What steps do you have in place to make sure this ultimate goal is realized?

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Tim Berry

Planning, Startups, Stories

Tim berry on business planning, starting and growing your business, and having a life in the meantime., the value of business plan assumptions.

assumptions for a business plan

Identifying assumptions is extremely important for getting real business benefits from your business planning. Planning is about managing change, and in today’s world, change happens very fast. Assumptions solve the dilemma about managing consistency over time, without banging your head against a brick wall.

Assumptions might be different for each company. There is no set list. What’s best is to think about those assumptions as you build your twin action plans.

If you can, highlight product-related and marketing-related assumptions. Keep them in separate groups or separate lists.

The key here is to be able to identify and distinguish, later (during your regular reviews and revisions, in Section 3), between changed assumptions and the difference between planned and actual performance. You don’t truly build accountability into a planning process until you have a good list of assumptions that might change.

Some of these assumptions go into a table, with numbers, if you want. For example, you might have a table with interest rates if you’re paying off debt, or tax rates, and so on.

Many assumptions deserve special attention. Maybe in bullet points. Maybe in slides. Maybe just a simple list. Keep them on top of your mind, where they’ll come up quickly at review meetings.

Maybe you’re assuming starting dates of one project or another, and these affect other projects. Contingencies pile up. Maybe you’re assuming product release, or seeking a liquor license, or finding a location, or winning the dealership, or choosing a partner, or finding the missing link on the team.

Maybe you’re assuming some technology coming on line at a certain time. You’re probably assuming some factors in your sales forecast, or your expense budget; if they change, note it, and deal with them as changed assumptions. You may be assuming something about competition. How long do you have before the competition does something unexpected? Do you have that on your assumptions list?

The illustration below shows the simple assumptions in a bicycle shop sample business plan.

assumptions

Sample List of Assumptions

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Thanks for the good read, Tim. This will be helpful to small businesses to minimize and manage future risks.

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List Business Plan Assumptions

business plan assumptions list

Identify and list business plan assumptions. You will get real business benefits from the assumptions list in your business plan. Planning is about managing change, and in today’s world, change happens very fast. Assumptions solve the dilemma about managing consistency over time, without banging your head against a brick wall.

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Assumptions might be different for each company. There is no set list. What’s best is to think about those assumptions as you build your twin action plans.

If you can, highlight product-related and marketing-related assumptions. Keep them in separate groups or separate lists.

You will use your business plan assumptions often

The key here is to be able to identify and distinguish, later (during your regular reviews and revisions, in Section 3), between changed assumptions and the difference between planned and actual performance. You don’t truly build accountability into a planning process until you have a good list of assumptions that might change.

Some of these business plan assumptions assumptions go into a table, with numbers, if you want. For example, you might have a table with interest rates if you’re paying off debt, or tax rates, and so on.

Many assumptions deserve special attention. Have a bullet point list. Maybe in slides. Maybe just a simple list. Keep them on top of your mind, where they’ll come up quickly at review meetings.

Maybe you’re assuming starting dates of one project or another, and these affect other projects. Contingencies pile up. Maybe you’re assuming product release, or seeking a liquor license, or finding a location, or winning the dealership, or choosing a partner, or finding the missing link on the team.

Maybe you’re assuming some technology coming on line at a certain time. You’re probably assuming some factors in your sales forecast, or your expense budget; if they change, note it, and deal with them as changed assumptions. You may be assuming something about competition. How long do you have before the competition does something unexpected? Do you have that on your assumptions list?

An Assumptions Example

The illustration below shows the simple assumptions in the bicycle shop sample business plan.

assumptions

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Ivey Business Journal

Strategic assumptions: the essential (and missing) element of your strategic plan.

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Stakeholders often approve a strategic plan without scrutinizing the strategic assumptions, the very foundation on which the plan has been built (Sound familiar? As in, “…the value of this derivative, which we call a Collaterized Debt Obligation, is built on the value of the underlying securities.” (which we have looked at…but uh..not very closely). This author sees an inherent danger in such a practice and states that stakeholders need to start scrutinizing the strategic assumptions that underlie the very plan they are being asked to approve.

In the field of strategy, the admission that assumptions are being made in the preparation of strategic plans needs to be acknowledged. Moreover, transparency and discussion surrounding these assumptions need to be viewed as key elements and the responsibility of the strategy creators.

In doing so, the practitioners themselves – be they CEOs, consultants, Chief Strategy Officers, or employees in the Strategy Management Office – will be forced to elevate both their own performance standards and the rigor of the strategy process to a level comparable to that exercised in the fields of science, economics and finance, where the publication and debate of assumptions are the norm. This will pave the way for strategy creators to gain greater credibility and build a stronger voice on executive teams. Finally, it will provide them with the opportunity to increase their contributions in determining direction and forecasting the future performance of the organization.

The reality is that strategic assumptions form an identical, underlying foundation for the strategic plan. They underpin everything contained therein – and hence reflect the vision, strategic map, performance targets and project portfolio which subsequently follow. The problem is that in the field of strategic planning, the assumptions that have been made are almost never clearly documented or highlighted. As a consequence, they are rarely scrutinized or challenged as they should be.

Too often, shareholders, employees and other major stakeholders unnecessarily invest time, money and energy in supporting an organization’s vision and strategic plan, not recognizing that the vision and plan were doomed to fail from the day they were conceived.

This article posits that the identification and in-depth analysis of an organization’s strategic assumptions need to become an integral part of the strategic planning process, and that the presentation of these underlying strategic assumptions should become an implied and required part of any written strategic plan.

The rationale for preparing a set of strategic assumptions

Financial analysts examining a set of projections insist on seeing a complete and detailed set of financial assumptions. These assumptions represent the raw material — the opinions, beliefs and more often, the hopes, of the management team — on which the projections are based. They usually receive very close scrutiny, especially since financial projections are only as valid as the assumptions upon which they are based. If the assumptions are deemed unrealistic or otherwise questionable, so are the projections. Analysts also understand that while financial projections can be manipulated, clearly presented financial assumptions cannot.

It is not just in the realm of finance that stakeholders demand to see assumptions. In almost all other fields, be they marketing and sales, or even engineering, science and economics, the assumptions used for future predictions are the first element to be examined and rigorously challenged.

Generally, this is not due to management duplicity – although in certain cases that cannot be ruled out. After all, it is easier to defend a set of financial projections when the financial assumptions are not attached; that is the reason financial analysts insist on receiving them. Likewise, it is easier to defend a strategy, business model, value proposition, value chain network, etc. when interlocutors are not aware of the underlying assumptions.

A major reason for the absence of a set of strategic assumptions is that often senior management does not recognize that assumptions are, indeed, being made. They genuinely believe that future markets, competition, customer needs, etc. will evolve exactly as they are expected to. The resulting “group think” – valid and well-founded or not – is therefore not viewed as a set of assumptions at all. It is viewed as fact, the most dangerous assumption of all!

Given today’s shift towards greater transparency, tighter governance, greater accountability for board members, and most importantly, the high levels of uncertainty about tomorrow, next quarter or next year, the business community requires a new paradigm for preparing and certifying a plan as “strategic.” Quite clearly, the moment has come to recognize that the content of any organization’s strategic plan is incomplete unless a complete set of strategic assumptions are included.

Preparing a set of strategic assumptions

The contents of an organization’s business plan often reflect the difficult choices made by management during the strategic planning process. The identification and discussion of the key issues are not intended to generate right or wrong “answers;” rather, they represent choices and shared points-of-view about what the team believes will happen. Together, they form a set of approximately 12-15 strategic assumptions upon which management intends to build its strategic plan and business.

Because all markets and organizations are unique, there is no universal set of strategic questions that must be posed when assembling a business plan. Indeed, a major challenge in strategic planning is the identification of the major questions an organization needs to address. Likewise, there is no universal set of strategic assumptions that must absolutely be generated and covered in every organization’s strategic plan. There are, however, generic areas where strategic assumptions generally must be made and which stakeholders should realistically expect management to disclose:

The category “Background of Shared Obviousness” makes explicit the existing, but often hidden strategic assumptions (or shared beliefs) that emerge from conversations and discussions that take place during the strategic planning process.

Shared beliefs about who the company is and beliefs on how it must operate in order to be successful are often seen as “obvious” by the participants and are rarely challenged, unless captured in real-time – often by a consultant, facilitator, or other outsider present –during the strategic planning sessions. Simple examples include:

These types of assumptions are very powerful and can be the sources of best practices, historical wisdom, norms of positive organizational culture or, alternatively, barriers to change. They can epitomize strategic and organizational rigidity, and guarantee that mistakes of the past are likely to be repeated. As with all strategic assumptions, this category of assumptions is not, by definition, positive or negative. It is, however, crucial that they be identified and recognized as being merely assumptions, not fact. They should also be made explicit, challenged, and only retained if they remain valid in the context of the future of the market and not as remnants of the past.

An example: The importance of a single strategic assumption

Let’s consider a simple example and examine the role of just one key strategic assumption: the strategic assumption about the future structure of an industry.

Imagine that we are considering investing in a relatively small steel company, “X”. There are major differences in the strategic assumptions X’s management team might make about the future development of the global steel industry. Will the business plan for the company be built upon the strategic assumption that:

  • The steel market will be dominated by a few global players, with all other contenders seeking to partner or avoid direct competition?
  • There will be regional consolidation, with key (different) players dominating markets in Asia, Europe and the Americas?
  • The high-margin steel businesses of the future will lie in specialty steel that serves one or several specific industries (i.e. automotive, aerospace, medical, etc.), thereby allowing for “niche” players?
  • There is no future in the steel industry for small players; the company needs to reposition itself as a supplier of “materials” (i.e. a supplier of composites, plastics, rubber as well steel) as opposed to being a supplier of steel products exclusively?
  • All trading of commodity steel products will soon be done through one global web site?

The contents of the strategic plan – and the future success of the company – will largely depend upon which of these, and perhaps a dozen other, strategic assumptions are made.

Lakshmi Mittal, President of Arcelor Mittal Steel, made his own personal strategic assumption about the future structure of the steel industry very clear in the following quote:

“I strongly believe that in the steel industry, scale is a crucial ingredient in the pursuit of value. Arcelor Mittal will be three times the size of its nearest competitor. The steel industry consolidation is under way and I have repeatedly said that by 2015, I expect each of the two to three largest global players to produce 150 million to 200 million tons of steel a year. This compares to 116 million tons produced by Arcelor and Mittal today.” Wall Street Journal, August 3, 2006

In this quote, Mr. Mittal clearly communicates one of his strategic assumptions about the future of the steel industry. The company’s corporate strategy, M&A activities, global distribution and marketing strategies, are all built upon this fundamental strategic assumption.

As potential investors in steel company “X”, we need to know whether and why its CEO agrees or disagrees with Mittal’s strategic assumption. We also need to know which other strategic assumptions that he is making. If he provides us with a complete list, we should be able to do a very accurate and thorough initial screening of the company’s request for funds – before we invest more of our time and energy examining the contents of the business plan.

Other examples of powerful strategic assumptions

  • In 2002, when one Canadian dollar was worth approximately US $0.65, a shared strategic assumption of almost all Canadian manufacturers was that parity between the Canadian/US dollar was simply unthinkable. In 2008, how have their beliefs changed? What is their strategic assumption of exchange rates for 2013? It is a crucial assumption that will form the foundation of their production strategy for the next five years.
  • An Asian hydro-electricity corporation built many facilities based upon two strategic assumptions: that there would always be glacial melt waters, and that there would be a predictable monsoon season each year. These strategic assumptions are no longer valid.
  • One of Jack Welch’s major strategic assumptions while at GE was that the company could not compete in commodity markets. Therefore, during his entire tenure, he moved GE in the direction of product differentiation and value-added services. This “Background of Shared Obviousness” strategic assumption drove GE’s strategic direction for many years.
  • What is a wine merchant’s strategic assumption around packaging? Will bottles prevail? Will the green movement see Tetrapak packaging make significant penetration in the market? Investment in manufacturing lines will rely on this assumption. Based on these assumptions, will the company perceive itself as a “packager of liquids” or as an “exclusive wine packager”?
  • What are the strategic assumptions envisioned by a university? Is it a research-based university? Does it serve the global market or is it focused on local population needs? Does it see e-learning as the way of the future or does it believe that students will always choose to “come to class”? The types of professors recruited, courses offered and delivery mechanisms all depend on the answers to these questions.
  • Does the mayor of a town located close to a major urban centre see itself as a bedroom-community or as a fast–growing potential rival which should attempt to attract new industry to locate within its boundaries?
  • Is the strategic assumption of a country based upon the assumption that economic growth (GNP) is paramount or does it subscribe to the theory of Gross National Happiness (GNH)?

Examples of the strategic assumptions adopted by the individuals, teams, organizations and nations in the above cases will determine their future plans and all the actions, projects, programs that will follow. We, as stakeholders in any of them, should be able to identify the strategic assumptions that have been made without having to try to read between the lines of a strategic plan. They should be clearly and proudly highlighted for all to see, for Strategic Assumptions show how we view the world, how we view ourselves, and who we really are.

Publicizing strategic Assumptions: The tipping point

It is unlikely that all CEOs will voluntarily choose to publish their strategic assumptions for evaluation overnight. Divulgence will only occur when important stakeholders demand to see them included as outcomes of the strategic-planning process and included as a separate item in the contents page of the plan.

There are several benefits which result from demanding to see the set of strategic assumptions included in a strategic plan:

  • Inclusion facilitates the analysis of any organization’s business plan by a financial institution, venture capitalist or angel investor. The risk of making a bad investment will be reduced if the investors understand and share the strategic assumptions of the organization’s management team.
  • Differences in points-of-view about strategic assumptions are the source of many of the conflicts that arise between investors and company management – and within a management team itself. Strategic assumptions represent the shared values, beliefs and vision of the management team. Demanding that they be included in a strategic plan will force management teams to hold the difficult internal conversations required and that allow them to uncover, challenge, and capture their shared assumptions.
  • Knowing they need to exit a strategic planning process with a complete, shared set of strategic assumptions forces a management team to use a much more rigorous strategic planning process.
  • Face-to-face, it is very difficult for most people to defend strategic assumptions which are ungrounded or that they do not believe or share.
  • Developing and debating strategic assumptions with groups of employees is an excellent way to gain buy-in and commitment to the organization. Having to declare and justify the assumptions upon which a plan is built means that it is difficult for a CEO to impose his or her views. With increased levels of employee buy-in, there is a greater probability that the strategic plan will actually be implemented.
  • By presenting strategic assumptions for rigorous debate and analysis, the probability is minimized that investors, employees, management and any other stakeholders will waste time, money and energy on trying to implement plans that have little chance of generating the promised results.

Strategic assumptions have been missing from the strategic planning lexicon for too long. It is time to put them in their rightful place.

Ivey Business School

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Inspired Economist

Business Assumptions: Understanding Key Predictions in Entrepreneurship

✅ All InspiredEconomist articles and guides have been fact-checked and reviewed for accuracy. Please refer to our editorial policy for additional information.

business assumptions

Business Assumptions Definition

Business assumptions refer to the expected financial and operational projections a business makes about future market conditions, business environment, and internal company dynamics that influence business decisions and strategy. They are yet-to-be-proven elements considered true for the purposes of planning and budgeting.

Types of Business Assumptions

Some key types of business assumptions that can play a significant role in shaping an entrepreneur’s business model and strategy include revenue assumptions, market size assumptions, and operational expense assumptions.

Revenue Assumptions

Revenue assumptions guide a company’s sales expectations, based on factors like pricing strategies and the volume of products or services they expect to sell. For instance, an ecommerce business may anticipate selling 1,000 units of a product every month, priced at $50 each. This results in a monthly revenue assumption of $50,000. It’s crucial to note that revenue assumptions should be realistic, grounded in market research and business analytics.

Market Size Assumptions

Market size is a critical factor in business forecasting. Market size assumptions can help a company estimate the total demand for their product or service within the target market. For companies launching a new product or venture, this might involve assuming the population size and demographic that will use their product. Similarly, for companies expanding into a new region, market size assumptions would include the potential customer base in that area. Misjudging the market size can lead to either overestimating or underestimating the potential for sales, both of which can negatively affect business planning and financial projections.

Operational Expense Assumptions

Operational expense assumptions encompass the anticipated costs required to maintain business operations, including rent, utilities, wages and salaries, maintenance, and technological infrastructure costs. These assumptions are crucial to controlling costs, planning for growth, and ensuring profitability. For example, a startup in the tech industry may anticipate needing large sums of capital for software development, tech hardware, and skilled personnel. On the other hand, a small retail business would focus more on rent and product costs. Understanding these operational costs will contribute to more accurate financial planning and prevent budget overruns.

The Role of Business Assumptions in Financial Planning

Business assumptions play a pivotal role in the entire financial planning process. They form the backbone of the strategic decision-making process and significantly impact budgeting, forecasting, and strategic planning initiatives of any business.

Budgeting refers to a financial plan that quantifies the expectations of revenues that a business wants to achieve for a future period. It uses business assumptions as a foundation to estimate both income and expenditure for a certain period. For example, a business might assume a specific rate of growth in sales based on factors like past trends, marketing strategies in place, and market research data. These assumptions, in turn, dictate how much can be spent on different business activities within the set budget.

Forecasting

Forecasting, on the other hand, is an estimation or prediction of future developments in business such as sales, expenditures, and profits. Given its predictive nature, forecasting heavily relies on business assumptions. Forecasting might involve assumptions on variables like future demand for the company’s products or services, price changes, cost inflation, or possible changes in the economy or industry. These assumptions help gauge what future performance might look like and guide decision making on matters such as investment in new projects.

Strategic Planning

Strategic planning is a process of setting long-term goals for the business and determining the best approach to achieve these goals. Business assumptions are used in this stage to consider various scenarios and their potential outcomes. For instance, a business might assume a particular market growth rate based on trends, competitor analysis, and industry insights. Depending on these assumptions, strategies are then formulated to achieve set objectives, such as entering a new market, launching a new product, or improving market share.

In conclusion, the role of business assumptions in financial planning cannot be overstated. They provide a well-defined path for budgeting, forecasting, and strategic planning, enabling businesses to make informed financial decisions and strategic choices. They act as a bridge between the present state of a company and its future vision, helping in efficient capital allocation and risk management.

The Impact of Business Assumptions on Risk Assessment

Business assumptions and risk assessment.

When conducting risk assessment exercises, the influence of business assumptions can be substantial. Assumptions help to create a framework for anticipating potential scenarios, providing a sort of guide or roadmap for decision-making. However, these guiding assumptions can color the ways in which risks are perceived and managed.

Consider a company planning a new product launch. It may hold certain assumptions about customer demand, manufacturing capabilities, and market trends. These assumptions will shape how the company perceives potential risks associated with the launch. It might focus on tackling risks that align with its assumptions while neglecting those that don’t.

The Pitfall of Over-Optimism

An overly optimistic business assumption could lead to underestimation of potential risks. If a company anticipates high demand for its new product, it may neglect to adequately consider the risks of low customer demand, poor product reception, or the presence of competent competitors. This, in turn, may result in an insufficient contingency plan, increasing the company’s vulnerability to unforeseen circumstances.

Similarly, a business that assumes a seamless manufacturing process may fail to take into account possible challenges or disruptions. It may not adequately prepare for supply chain disruption, equipment failure, or manpower shortage, all of which increase operational risk.

The Danger of Over-Pessimism

On the other hand, overly pessimistic business assumptions may lead to an over-focus on avoiding negative outcomes. This could stifle innovation and aggressive strategic moves, limiting the business’s ability to seize growth opportunities.

A company expecting extremely low demand for its new product might overestimate the potential risks, devote excessive resources to contingency planning, and divert capital from investments in growth-driving activities such as research and development or marketing. This overly conservative approach could lead to missed opportunities and prevent the business from achieving its full potential.

In conclusion, striking a balance between optimism and pessimism in business assumptions is key in risk assessment. A well-considered, realistic assumption can help businesses navigate potential obstacles while still keeping sight of growth opportunities.

Criticality of Validating Business Assumptions

Ensuring the validity of business assumptions is a critical step in strategic planning and decision making. Assumptions, by definition, are subject to scrutiny and must be verified to establish their accuracy. The consequences of unverified or inaccurately-based assumptions can have far-reaching impacts, potentially jeopardizing a business’s competitiveness and overall success.

Methods for Validating Business Assumptions

There are various approaches to validating business assumptions. The choice of method often depends on the nature of the assumption and the context in which it is being applied.

Market Research

One of the most common methods is market research. This may involve surveys, focus groups, interviews, or analysis of secondary data like existing research reports and public market data. For instance, if the business assumption is about customer preferences or behavior, conducting a survey or organizing focus groups may provide insights to either validate or question the assumption.

Furthermore, market research is particularly useful in analyzing external business environment factors. It provides data on market trends, demographics, consumer preferences, and competitor analysis that can help in forming accurate assumptions.

Example of Markdown for Market Research

Hypothesis Testing

Another approach is through hypothesis testing. Essentially, this consists of establishing a null hypothesis that opposes the business assumption. Subsequently, relevant data is collected and analyzed to either accept or reject the null hypothesis.

For example, if a business assumes that a new product will increase sales by 10%, the null hypothesis would state that the new product will not lead to any change in sales. Following this, the company can monitor sales to confirm or disprove their assumption.

Example of Markdown for Hypothesis Testing

These methods, coupled with a persistent and critical approach to the validation process, can prevent the costly implications of inaccurate assumptions, enhancing the decision-making process. It’s vital to remember that business conditions are continually changing, necessitating regular reviews and validations of our business assumptions.

Business Assumptions in Startup Ecosystems

Startups operate in volatile environments with varying degrees of uncertainty, and business assumptions form the structural framework on which their financial modeling and investment pitches are built. Financial models for startups are primarily created to forecast potential revenues and expenditures, identify integral key drivers for growth, calculate the necessity and timing for external funding, and, in the process, model possible financial performance based on a set of assumptions.

Let’s first look at Financial Modeling . In this context, important assumptions usually revolve around the total addressable market size, product pricing, estimated customer acquisition costs, churn rates, revenue growth, and cost structure. It also includes assumptions concerning the competitive landscape and how the startup’s offering would fare against it. These assumptions are quite critical to forecasting the startup’s revenues, costs, cash flow and hence, its profitability and financial viability in the long run.

Parallelly, Investor presentations and Pitches rely heavily on the credibility of these business assumptions. Investors scrutinize these assumptions for their validity, robustness, and flexibility under changing circumstances. The quality and realistic nature of business assumptions act as a mirror, reflecting the strategic acumen and forward-thinking capability of the entrepreneurial team. However, it’s important for founders to balance ambition with pragmatism. While it’s essential to show potential for high growth and attractive returns, over-ambitious or unrealistic assumptions might raise skepticism among investors and might hinder their chances of securing investment.

The implication of business assumptions for early-stage entrepreneurs are far reaching. Not only do they guide the strategic decisions but also help in foreseeing challenges and planning for contingencies. It’s quite common for initial business assumptions to be off-target since they are based on limited information and insights. Over time though, with increasing market knowledge and operational experiences, these assumptions should evolve to become more accurate and reliable. Consequently, it’s critical for startups to regularly re-visit and update their business assumptions, aligning them with their real-time learnings and changing market dynamics.

Furthermore, it’s crucial for entrepreneurs to clearly communicate the basis of these business assumptions to their team and investors. This transparency fosters trust, promotes collective understanding and provides the foundation for strategic alignment across the organization. It also demonstrates to potential investors the team’s ability to critically analyze their business environment, thereby strengthening their confidence in the entrepreneurial team and hence, the startup.

At the end, it’s important to remember, business assumptions are just assumptions. They serve as a guide rather than the absolute truth. Thus, while they can drastically improve the chances of startup success, they should be utilized with caution, flexibility, and a good degree of open-minded skepticism.

Link Between Business Assumptions and Sustainable Business Models

Understanding the link between business assumptions and sustainable business models is crucial for business longevity.

The Role of Business Assumptions in Creating Sustainable Business Models

In creating a sustainable business model, it is critical for businesses to establish accurate business assumptions. This is because the underlying assumptions will carve the path for the business’s approach to maintain economic, social, and environmental value over the long term.

For instance, assumptions about customer preferences can influence the business’s strategy in offering eco-friendly products. If the business assumes that the customer base values environmental stewardship, it might adopt a model based on the offer of sustainable goods. This impacts resource utilization, easing pressure on finite resources by supporting more ethical supply chains.

Business Assumptions Impact on Long-term Viability

Moreover, business assumptions regarding costs, revenues, and market dynamics can greatly influence long-term viability. If a firm assumes steady growth and stable market conditions, it is likely to focus on expanding operations and increasing revenues. However, these assumptions might not hold in times of economic downturns. So businesses need to constantly rethink and reevaluate their assumptions, adapting their strategies to reflect the realities of their operating environment.

The Influence on Corporate Social Responsibility

Business assumptions also play a considerable role in shaping a business’s Corporate Social Responsibility (CSR) initiatives. If a firm assumes that their stakeholders value CSR, the business model might incorporate CSR initiatives to drive sustainability. This impacts not only environmental sustainability but also social sustainability. By making such strategic decisions, businesses can enhance their reputation, drive customer loyalty and ultimately secure their market position.

In summary, the assumptions a business operates under may significantly affect the formulation and success of their sustainable business models. Regular review and adjustment of these assumptions allow for a more accurate, resonate, and ultimately successful approach to sustainability.

Guidelines for Making Reasonable Business Assumptions

When crafting business assumptions, the ultimate goal is making them as reasonable and realistic as possible. A well-reasoned assumption lies at the heart of any prudent business decision. Here are effective guidelines to follow:

Adopt a Conservative Approach

It is wise to err on the side of caution. Over-optimistic assumptions can spiral into unattainable goals and failed operational plans. Therefore, a conservative approach is often best. For instance, overestimate your costs and underestimate your revenues. This stance creates a buffer for unpredictable market events and uncontrollable factors that might increase your costs or decrease revenues.

Consider Current Market Trends

To make the most realistic assumptions, current market trends must be considered. This means regularly monitoring and familiarly understanding your industry trends while keeping an eye on the broader economic landscape. Your assumptions should align with these trends. For instance, if the trend shows a decline in the market segment that corresponds to your product, it would be unrealistic to assume robust growth in your sales.

Regular Review and Update of Assumptions

Business assumptions should never be stagnant. As you gather more data, and as the business climate evolves, your assumptions should, too. Regular reviews and updates of your assumptions can help significantly in keeping your business strategy relevant and realistic. It also allows you to assess view your business situation from different angles and make swift pivots when necessary.

Sound Underlying Logic

Every business assumption you make should have a sound underlying logic. It shouldn’t merely be a number picked out of thin air. When setting assumptions, make sure to document the reasoning behind each one. This approach allows for healthy discussion and challenge of the figures and underlying methodologies.

Adopting these guidelines helps create business assumptions that reflect reality and are defensible, increasing the likelihood of creating a viable and successful business strategy.

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Strategic planning: managing assumptions, risks and impediments

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While no one likes the idea of having one foot on the brake while doing strategic planning, there are very good reasons to take the time required to be cautious. We are speaking to the undeniable link between the business assumptions we make and the risks we introduce to the organization during strategic planning. In fact, the assumptions we base strategies upon can mushroom into grave risks and show-stopper impediments down the line – appearing out of nowhere when the business attempts to execute to a seemingly well-laid plan. Twelve to eighteen months into strategy implementation is too late to go back and ask, “What were we assuming…?” Given that time will always be of the essence, what kind of strategic assumption vetting and risk management is warranted? How much is enough?

Assumptions Introduce Risk

At a minimum, the planning process must involve an evaluation of the impacts that the strategy will have on the business to determine if it will actually help accomplish the outcomes intended. That is the absolute minimum requirement.

The strategic planing process is the one key point to get in front of idle supposition and truly manage assumptions, risks and impediments. When strategy is well developed, there will be an actual plan for implementation associated with the strategy. A holistic plan defines goals that support the strategy and addresses the operational tactics that will accomplish the goals. No business possesses a crystal ball to know exactly what will happen in the economy, financial markets or competitors next bold moves. That means that business assumptions are a necessary evil.

Given that we must rely upon certain assumptions to put strategic plans together and that risk will always be present (as will natural impediments to execution of strategy), the following sections will explore each of these factors at the planning level…beginning with a definition of terms and ending with approaches to better manage process.

What is an assumption in strategic planning?

The dictionary defines an assumption as follows: “ something taken for granted; a supposition ”.

Assumptions form the basis of strategies, and those underlying assumptions must all be fully vetted. Testing strategic assumptions requires allowing those involved with planning to back away from the “givens” and challenge them to ensure the team is not assuming the rosiest of scenarios on which to base strategy.

Considering that the synonyms for the word “assumption” includes words like “hypothesis”, “conjecture”, “guess”, “postulate” and “theory” the concept takes on a more weighty meaning in the  strategic planning process. Yes, assumptions are beliefs we take for granted, but they can be no better than guesses in many cases.

Assumptions are not always justifiable. Defending an assumption may be difficult, as facts are not always available to support the belief. That does not mean that they are incorrect, but it does underscore the challenge assumptions present in planning. In fact, assumptions are particularly difficult to even identify because they are usually unconscious beliefs.

An assumption about assumptions:

One can safely assume that if an assumption is sound, the inferences and conclusions associated with the assumption will also be sound. Unfortunately, the reverse is also safe to assume.

What is a risk in strategic planning?

As a noun, risk means something that may cause injury or harm or the chance of loss or the perils to the subject matter. As a transitive verb, risk means to “expose to hazard or danger” or “to incur the risk or danger of”.

In strategic planning, the definitions applying to both the noun and the transitive verb usage are relevant. A risk might be an event or condition that might occur in the future. Likewise, we may risk financial losses if we bet on an assumption that is incorrect.

An unmitigated risk can become an impediment, so risks must be evaluated in terms of the likelihood they will occur and the impact they will have if they do occur. If the impact/likelihood of a risk is high “enough”, we should identify a mitigation path – as an unmitigated risk can become an impediment later on.

All risk can never be removed from a strategic plan, therefore business planning teams must approach risk management from a Cost / Benefit perspective. Business risk mitigation in planning can cost speed, but if risks are addressed early the organization can avoid future impediments.

What is an impediment in strategic planning?

An impediment is something that makes movement or progress difficult. It differs from being a risk in that risks are future-based and an impediment is something that is occurring now.

During the strategic planning process, impediments might be grouped into macro or micro categories. Macro impediments might include: poor culture, business process inefficiencies, lack of job descriptions, no performance metrics and many other general types of issues. Micro impediments might include: core competency gaps, having people in the wrong roles, lack of sufficient tools to support business functions and technology / infrastructure issues.

Knowing business impediments and factoring them into the planning process adds realism to the strategy being developed and the operational tactics needed to implement it.

How should risks, assumptions and impediments be identified?

Identification of assumptions.

Strategic planning is a team sport, so working in teams is a great way to approach the identification of assumptions. In small groups, conduct a “round robin” to identify the assumptions within each strategic theme of the plan. Review the assumptions compiled by each team and discuss. This same approach can be used to identify impediments and risks.

The following are questions that assist to identify assumptions:

  • Is there anything being taken for granted?
  • Are there beliefs that we are ignoring that we shouldn’t?
  • What beliefs are leading us to this conclusion?
  • What is… (this project, strategy, explanation) assuming?
  • Why are we assuming…?

Identification of Risks

Risks are about events that, when triggered, cause problems. Hence, risk identification can start with the source of problems, or with the problem itself. Remember, risk sources may be internal or external to the organization. Examples of risk sources are: external stakeholders, employees, finance, political and even weather.

Risks are related to the identified threats from SWOT analysis, so that is another valuable reference during the identification process. For example: the threat of losing money, the threat of a major planned product launch being delayed or the threat of a labor strike disrupting critical manufacturing operations. The threats may exist with various entities, most importantly with shareholders, customers and legislative bodies such as the government.

When either source or problem is known, the events that a source may trigger or the events that can lead to a problem can be investigated. For example: banks withdrawing funding support for expansion; confidential information may be stolen by employees; weather delaying construction projects, etc.

Additionally, other methods of risk identification may be applied, dependent upon culture, industry practice and compliance. For instance, objectives-based risk identification can focus on any potential threats to achieving strategic objectives. Any event that may endanger achieving an objective partly or completely can be identified as risk. Scenario-based risk identification – In scenario analysis different scenarios are created. The scenarios may be the alternative ways to achieve an objective, or an analysis of the interaction of forces in, for example, a market or battle. Any event that triggers an undesired scenario alternative is identified as risk. As a final example, a taxonomy-based risk identification can be utilized, where the taxonomy is a breakdown of possible risk sources. Based on the taxonomy and knowledge of best practices, a questionnaire can be compiled and the answers to the questions used to reveal risks.

How should risks, assumptions and impediments be dealt with?

Dealing with identified assumptions essentially becomes a task of translating the assumption to a risk. Once all risks have been identified, they must then be assessed as to their potential severity of impact (generally a negative impact, such as damage or loss) and to the probability of occurrence.

The assessment of risk is critical to make the best educated decisions in order to mitigate known risks properly. Once risks have been identified and assessed, the strategies to manage them typically include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk.

Taking the time and caution to identify, asses and deal with the risks and other factors will always be a worthy investment, even when time is of the essence. The vetting of these factors will pay off in smooth implementation of the strategic plan down the line. Your plan can proceed, free of the potholes and other roadblocks that, with a little planning, might well have derailed the best-laid plans.

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Since 2006, Joe Evans has been President & CEO of Method Frameworks, one of the world's leading strategy and operational planning management consultancies. The firm provides services for a diverse field of clients, ranging …

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Project Bliss

How to create a project assumptions list: examples and template included.

When my daughter was very little, she came home from school one day and told me the saying about assumptions: When you assume, you make an ass out of you and me.

Gasp! “Where did you hear that, honey?”

“At school, Mommy. Our teacher told us.”

The class was shocked and amazed because their teacher had used the word “ass.”

This was back when they still thought “butt” was a bad word.

We’ve all heard that one.

I just didn’t expect my little one to learn that saying so early in her life.

Though it’s often true, that saying does not apply to your project.

When you plan your project, you’re operating on a set of assumptions. And you need to make sure those assumptions are understood by everyone involved.

But maybe the idea of dealing with assumptions in project management is a bit confusing.

What are project assumptions, anyway?

How are you supposed to know what they are? And what do you do with them once you’ve identified them?

Is it worth the effort to figure it out and take the team’s valuable time to do it?

Yes. And in this post I’ll go over the following items:

  • The benefit of identifying and creating a list of  project assumptions
  • Different types of project assumptions – including examples
  • How to identify and manage project assumptions

But first, it helps to understand just what assumptions in project management are.

What are Project Assumptions?

Project assumptions are those things you assume to be true for your project to be successful.

They’re called assumptions because you assume that for your project to move forward successfully as planned, these things will be in place.

Even though you don’t have proof at the moment, you expect them to occur during the project.

But just because you assume them to be true doesn’t mean that everyone else does. That’s why it’s important to go through the process of identifying your project assumptions.

“Just because you assume something to be true for your project doesn’t mean everyone else does. Planning around false assumptions sets you up for problems. Get it out in front of others so they can verify if it’s true or not. ”

Why It’s Important to Identify Project Assumptions

You identify and create a list of project assumptions, so you don’t have to double check everything before moving forward with your project.

You need to be able to move forward without getting bogged down checking every detail you know will likely be true.

In your day-to-day life, for example, you start each day with assumptions about what will be true:

  • You assume you need a certain amount of time to get ready for and get to work each day.
  • You assume that you’ll have electricity when you wake in the morning and that you’ll have hot water for your shower.
  • You assume when you get in your car to drive to work, it will start.
  • You assume that the train will run on time.
  • You assume your office will be open and you’ll be able to conduct your work once you arrive.

These are assumptions we usually take for granted.

However, things don’t always go as planned. One day my husband walked out of the house for work, as usual. Shortly after, he walked right back in again. He was shaking his head, and said to me, “your car is on cinderblocks. Someone stole your tires.”

When I woke that morning, I assumed I’d have tires on my car so I could drive to work.

This is an extreme example (but true).

Something more likely is my assumption that traffic will flow smoothly on my drive to work. And yet I check the traffic map as I leave the house. I check that assumption so I can adjust my route if needed.

The stakes can be higher when we’re talking about the success of your project.

But many people don’t take the time to consider project assumptions. It’s easy to overlook them. After all, there are so many things to focus on, such as identifying scope, gathering requirements, creating your schedule, among many others.

Dealing with project assumptions isn’t sexy. But skipping it may come back to bite you. And if you’ve never done it, it can be confusing.

So let’s break down how to do it.

Types of Project Assumptions

To help you think through and manage assumptions, it can help to understand the different kinds of project assumptions.

They usually break out into different categories. Doing so helps you think through all the different types of assumptions you need to consider.

Here’s a list of categories to start with. If these are too many, scale back the number of categories and make them fewer and broader.

But if you’re new to project assumptions, this will help you consider the many different areas where you’ll make assumptions about your project.

  • Resources – people, materials, or facilities needed to complete the project
  • Delivery – what’s intended to be delivered.
  • Budget – estimated cost of the project
  • Finances – funding to complete the project
  • Scope – the scope of the what’s to be delivered
  • Schedule: tasks, durations, and dependencies needed to complete the project
  • Methodology – the approach you’ll take to completing the project.
  • Technology – this could cover software development , platforms, environments, and infrastructure
  • Architecture and design – architecture and design approach your team will use

Now that you’ve got categories, it’s helpful to see examples.

Examples of Project Assumptions

Now that you’ve got a list of categories, it will make things even clearer to provide examples in each.

  • End users will be available to test during the time they agree to
  • Training rooms will be available at the training center as needed
  • Project servers arrive configured as expected
  • Correct number of handheld devices arrive on target delivery date with no delays
  • Project costs will stay the same as initially budgeted costs
  • Training will be conducted internally with no additional training costs incurred
  • Funding for licenses will be provided by various departments as needed
  • The project scope will not change once the stakeholders sign off on the scope statement

Another Helpful Template for you: This Simple Project Scope Statement Template Will Improve Your Project Success

  • Materials will arrive as planned within the project schedule
  • Vendor contracts will be fully executed within two months of vendor selection.
  • Project will follow waterfall methodology throughout execution
  • Project will follow team governance guidelines and requirements
  • The team will write the solution in Java
  • The solution will use the existing test environment
  • The solution will utilize REST API architecture
  • The solution will reside in an offsite cloud

If architecture is an area you’re not as familiar with, the Open Group has a great deal of information about architecture compliance that may be interesting to review.

So now…

You know what project assumptions are.

You have categories and examples.

Now you’re ready to start compiling a list of project assumptions.

How to Identify and Manage Project Assumptions

Follow these activities to address project assumptions.

1. Identify and Document

Identifying your project assumptions is not something to do all by yourself while sitting at your desk alone. You need to include the team. They’ll be able to provide insight and help create a more comprehensive project assumptions list.

Whether you do it virtually or in person, explain that you’ll be compiling the list of project assumptions with their input.

Share the categories with them and ask for ideas or feedback on them. Do they fit your project? Should they be changed in any way?

Once you’ve settled on your categories, begin to brainstorm and list the project assumptions together.

Capture them as your team shares them, and identify the category that each falls within.

As you work through these, document them.  One of the best ways to do this is in a Project Assumptions Log.

2. Create a Project Assumptions Log

The project assumptions log allows you to document additional information about your project assumptions, and track the status of each.

Simply identifying the assumptions isn’t enough. You need to document them in a way that helps everyone understand the current assumptions and how you’ll manage them going forward.

In the Project Assumptions Log include values for each of the following categories:

  • Assumption log number: for ease of tracking and discussing
  • Initial date logged
  • Category (resource, delivery, budget, etc.)
  • Name/description of the assumption
  • Owner who takes responsibility for following up
  • Due Date: date to validate
  • Status: Open or closed
  • Actions/Comments: Action needed or taken.

 3. Communicate and Validate with Stakeholders

Once you’ve got your list of project assumptions, don’t just set them aside.

Share them with stakeholders. It’s important for stakeholders to know the assumptions you’re working under.

If any of them change, it could impact your project. Your timeline or budget may change.

Additionally, your stakeholders may have insight that you’re not aware of regarding assumptions you’ve made.

If you discover any of your assumptions are wrong, make adjustments in your documentation. Make sure the team knows. The change will likely impact your plan.

You need to determine how the plan needs to change based on the new information.

Related Post: Project Communication Plan Template and Guidelines

Related Post: Increase Project Success with a Stakeholder Analysis Template

4. Monitor throughout the project

Validate your project assumptions at various points throughout the project.

Your assumption owners listed in the Project Assumptions Log should follow up and validate on the target dates.

For example, if you have an assumption about contract execution times, check with the legal or procurement team during the contract execution timeframe. Situations change, and you need to make sure your assumptions hold true throughout. As assumptions and dates pass, you can mark those items as closed.

If any project assumptions turn out to be false, this would negatively impact your project.

Monitor them throughout so that you can adjust as needed.

5. Adjust if Needed

As you monitor your project assumptions list, you may find that some assumptions change.

If they do, take action and adjust as needed.

These changes may impact your project in the areas of cost, schedule, or quality.

Be prepared to adjust your plan to account for these changes.

Communicate the changes to the team, stakeholders, and anyone else impacted.

Now you know what project assumptions are, why it’s important to identify them, and how to do it.

It may seem like a lot of work. But when you brainstorm with your team, it goes faster, and you’ll capture more than doing it alone.

It’s a great communication tool to make sure your assumptions are shared and validated, and you can monitor them throughout your project.

Use the form below to download your Project Assumptions List Template.

Capturing your project assumptions will help you communicate the situation you expect to be working within.

You also need to plan for those unexpected events that throw your project plan in a tailspin.

To help you prepare and be ready to move through them smoothly, check out How to Create a Project Management Risk Matrix

The instructions and Risk Matrix will set you up for even more success. You’ll have your team ready with response plans for events that would send others into a tailspin.

And you’re off to a great start!

About The Author

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Leigh Espy is a project manager and coach with experience working in startups, government, and the corporate world. She works with project managers who want to improve their skills and grow in their career, and entrepreneurs and small businesses to help them get more done. She also remembers her early career days and loves working with new project managers and those who want to make a career move into project management.

12 Comments

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One of the benefits of adopting Primavera P6 over other project management tools for scheduling your projects is because Primavera P6 stores your project data in a database

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Very Much Helping

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Very informative and easy to understand! Thank you!

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Hi Leigh, I am working in the M&E sector in Bangladesh. Your theoretical and practical knowledge really moved me. Thanks for sharing your knowledge. It has supported me greatly to understand this concept. Thanks, and hoping that more articles will come like this in future.

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Working in a startup environment, knowledge and skills you impart is truly helpful.

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I’m so glad you find it helpful! And thank you for your kind words!

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Learning is fun with your blog It is 2:45 am in Manila, yet I cannot close my laptop.

Thank you for the kind words – I truly appreciate it!

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Hi Leigh, I am studying at the UOA in Engineering Management. To be an engineering project Manager is my next career goal. Except for studies, I am wondering what I should do to enrich my experience and improve my skills for a future work opportunity? Looking forward to your reply. Thanks so much!

Kind regards, Holden

Your formal studies will help. Additionally, project work experience would be extremely beneficial. If you can manage to get work on a project, go for it. Even if you’re not the lead project manager, taking a supporting project coordinator role can also be beneficial. Even if you’re doing it through a volunteer organization it can be valuable. Not only will you get the project experience on your resume, you’ll be able to make connections that could be helpful, too. Best of luck to you!

  • Pingback: New PM Articles for the Week of February 19 – 25 - The Practicing IT Project Manager February 25, 2018

What Are the Financial Assumptions on a Business Plan?

  • Small Business
  • Business Planning & Strategy
  • Financial Business Plans
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How to Obtain Short-Term Financing for a Business

Keys to a successful business pitch, how to write the perfect business plan.

  • How to Start a Candy Store Business
  • How to Write a One-Year Profit Projection Letter

Business plans are required for all small businesses seeking loans or investors. Financial assumptions and projections are critical components of all business plans. Three universal financial presentations are expected in all business plans.

You must include a projected income statement, balance sheet and cash flow statement for the coming three to five years. Along with the numbers, include a narrative that explains your assumptions and how the line items were computed.

Financial assumptions and projections are critical components of all business plans. They include income and expense assumptions, as well as the inventory and accounts receivable in the balance sheet. Assumptions for balance sheet presentations should be conservative and based on reasonable expectations of asset acquisitions in the coming five years. These will help to construct the assumptions in the cash flow statement.

Construct an Income Statement

Construct your income statement on a month-to-month basis for the first one to two years. You can then switch to quarterly projections for years three through five. One key item dominates this presentation. Base your income and expense assumptions on factual, verifiable information.

For example, if your product competitively sells for $25 to $40, refrain from using a $60 selling price to craft your sales projections. Also, base your sales volume assumptions on realistic statistics, easily verified by a quick market analysis.

Balance Sheet Presentations

Assumptions for balance sheet presentations should be conservative and based on reasonable expectations of asset acquisitions in the coming five years. Of particular concern to lenders and investors are inventory and accounts receivable. Both are functions of sales. Therefore, carefully match your inventory assumptions with your gross income projections.

Unless accounts receivable are typically large in your industry, do not project high balances. Because cash is usually in short supply for small businesses, tying up this precious resource in excessive inventory or accounts receivable can be damaging.

Cash Flow Statement

If you have a new small business or a modest company needing financing or investment, the projected cash flow Statement may be the most important financial assumption you make. While both lenders and investors want your small business to generate solid net income and have a strong balance sheet, cash flow is more important. It is from cash flow that you can repay loans or distribute cash to investors from profits.

Warning when Making Assumptions

Making financial projections based on solid assumptions is wonderful. But you must explain the derivation and calculations to give business plan readers confidence in your data. Don't commit newer entrepreneur mistakes. Many spend hours pouring over data and create reasonable financial projections.

However, newbies often forget or feel inadequate to explain their assumptions in text format. Assuming that loan officers are experts in reading business plans is smart. However, assuming they are experts in your industry is a mistake. Write as detailed a narrative as possible for your financial assumptions, with references that your loan officer can verify.

Diligent Research and Expert Insight

Making valid financial assumptions, and explaining them clearly, can make the difference in receiving the funds you need or suffering rejection by lenders or investors. Often, the primary reason for approval or rejection relates to your display of expertise in your industry. Perform your industry and competition research diligently and with a total focus on becoming an expert. You must then make financial assumptions based on this expertise – and communicate this clearly in your business plan. Your financial assumptions will be challenged. Have knowledgeable answers ready for these challenges.

  • Growthink: How to Develop Reasonable Financial Assumptions
  • Inc.: How to Write the Financial Section of a Business Plan
  • Rodgers Associates: Three Key Assumptions To Make in Financial Planning
  • PlanWare: Software to Make Good Financial Projections

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Understanding the Role of Business Plan Assumptions in Success

Business plans are the strategic blueprints for entrepreneurs and business proprietors, forming the basis for a successful venture. However, the underlying building stones of these plans – the assumptions, are often neglected. These inferences, drawn based on market trends, consumer behaviour, and financial forecasts, play a pivotal role in determining a business’s feasibility.

Comprehending and analyzing these assumptions becomes a crucial part of strategic planning, equipping entrepreneurs tomake informed decisions and boosting the probability of accomplishing their goals.

Grasping Frequent Usage of Business Plan Assumptions

Financial assumptions serve as the foundation for a foolproof business plan . They assist in estimating costs, revenue, return on investment, and expenses. To maintain credibility, it is vital to make assumptions that are both accurate and realistic. It’s advisable to formulate conservative assumptions to exhibit operational stability and reliability. These assumptions should be rooted in real outcomes, industry standards, and personal experience.

Inclusion of cash flow suppositions in the balance sheet and their explanation in the notes to financial statements is crucial. Sensitivity analysis lets us gauge the impact of diverse scenarios.

Illustration of Assumptions Usage

Financial assumptions are a fundamental element of a well-prepared business plan. These assumptions pave the way for predicting revenue, costs, return on investment, and expenses. It is vital to ensure that the assumptions are precise and align with the evidence provided in the business plan. For maintaining credibility with investors, it’s preferable to formulate prudent assumptions. They need to be based on actual outcomes or industry standards.

It’s essential to include cash flow suppositions on the balance sheet and clarify the usage of funds. To explain your assumptions, the notes to financial statements should provide detailed analysis . Using spreadsheet programs like Microsoft Excel for data analysis can prove beneficial. Adequately communicating these financial assumptions is a sign of a well-structured business plan.

Delving into Financial Assumptions in Business Plan

Value of financial assumptions in plan development.

Financial assumptions form the backbone of business plan development. They guide in calculating costs, revenue, return on investment, and expenses. Assumptions that are accurate and realistic help a business plan in demonstrating reliability and operational experience to potential investors. The basis for these predictions should be actual outcomes from the company or industry standards, and they should be corroborated by historical data and personal expertise.

Sensitivity analysis can reveal how different scenarios could affect these assumptions. To maintain transparency, it is recommended to enumerate the financial assumptions separately or incorporate them within the business narrative.

Contrasting Financial Assumptions with Projections

Financial assumptions are a fundamental component in a meticulously composed business plan. They guide in estimating costs, revenue, ROI, and expenses. For credibility, it is crucial to ensure that assumptions align accurately with the data displayed in the plan. Prudent suppositions are recommended to establish trust with financiers. These predictions should be rooted in real experiences of your own firm or other industry standards, including all cash flows.

Using spreadsheet software like Microsoft Excel along with historical pointers, industry benchmarks, and personal knowledge, you can prepare precise financial assumptions. Performing sensitivity analysis helps in grasping the effect of different situations, thereby enhancing the plan’s efficiency. Communication of financial assumptions is integral for a triumphant business plan.

Examining Key Assumptions for Various Financial Statement

Income statement assumptions.

Financial assumptions play a central role in formulating a comprehensive business plan. The purpose is to aid in predicting costs, revenue, return on investment, and expenses. These suppositions should match the data presented in the plan. It’s advisable to lean towards a conservative approach when presenting assumptions to uphold credibility. Demonstration of practical assumptions can strengthen the trust of potential investors.

It’s critical to base assumptions on real scenarios from your owncompany or industry standards. Tools like Microsoft Excel can simplify the calculation and presentation of financial suppositions and sensitivity analysis can reveal the impact of variable scenarios.

Balance Sheet Assumptions

Financial assumptions form a vital part of a business plan, offering direction for revenue projections, cost forecasts, and return calculations. These assumptions should parallel the information in the plan to ensure credibility. Adopting conservative suppositions illustrates operational stability and helps foster investor confidence. Inferences should ideally stem from your company’s history or industry standards, supported by past data and individual expertise.

Software like Microsoft Excel can efficiently organize and display these suppositions. Explicit communication of these assumptions can effectively convey the company’s financial strategy and outlook.

Cash Flow Statement Assumptions

Financial suppositions are an integral part of a well-curated business plan. They aid in predicting costs, revenue, return on investment, and expenses. Ensuring we use conservative assumptions based on factual data from your firm or industry standards is a critical component in maintaining investor trust. Realistic assumptions about potential operations underpin financial sections of a business plan.

Considering software tools for preparing your assumptions and sensitivity analysis for examining various situations can be beneficial in achieving a well-rounded business plan.

Notes on Assumptions for Financial Statements

Financial assumptions are pivotal in composing a robust business plan. They function as a roadmap for predicting revenue, costs, return on investment, and expenses. Authenticity of assumptions and their alignment with the business plan data can maintain credibility. Prudent assumptions portray operational stability and trustworthiness. These assumptions should be rooted in your personal company experience or that of others in the same sector.

Software programs like Microsoft Excel can simplify the task of preparing financial predictions. Sensitivity analysis lets you explore the impact of varying situations.

Identifying Assumptions Crucial in Developing a Financial Model

Financial assumptions form the cornerstone of a meticulously crafted business plan, offering directions for revenue and cost forecasts, return on investment, and expenses. Assumptions need to accurately mirror the information outlined in the plan. Conservative suppositions are advisable to sustain credibility. Realistic assumptions are central to the financial portion of a firm’s business plan as scrutinization from investors is common.

Relying on actual results from market analogues or similarorganizations is optimal. Assumptions about the flow of money into and out of the organization should feature in balance sheet related data, while cash flow assumptions should highlight areas of expenditure. Employing spreadsheet applications for accurate assumption management and analysis is advisable. The notes to financial statements should offer insight into the reasoning behind assumptions. Sensitivity analysis can elucidate the influence of diverse circumstances.

Effective assumption communication within the narrative or a dedicated financial section contributes significantly to an accomplished business plan.

Steps to Prepare Your Business Financial Assumptions

Examining current financials.

Financial assumptions offer the blueprints needed to forecast various facets of a business plan such as costs, revenue, ROI, and expenses. Ensuring the credibility and accuracy of these suppositions is imperative. They should be derived from empirical data from your organization or industry standards. Customer trust is maintained when balance sheet inclusions cover all aspects of cash flow, and there is a clear outline of fund utilization.

Using applications like Microsoft Excel and offering detailed explanations in the notes to financial statements, you can conveniently communicate the fiscal details of your business plan.

Establishing Financial Assumptions

Financial suppositions provide a roadmap for forecasting the economy of a business plan, like costs, revenue, ROI, and expenses. Accuracy and reflection of the business plan information are integral to building credible suppositions. It’s important to portray realistically calculated assumptions in the financial section of a business plan to establish investor trust; these should be based on your own company experience or industry benchmarks including both types of cash flows.

Spreadsheet software can assist in preparing these assumptions accurately, and sensitivity analysis can elucidate the outcome of diverse scenarios. Assurance of effective financial assumption communication within the narrative or financial section of the plan is key to success.

Projecting Cash Flow Statement and Balance Sheet

Financial assumptions lay the groundwork for well-crafted business plans, serving as guides to calculate costs, revenue, ROI, and expenses. Assumptions need to be both precise and credible in their formulation. All cash flows should feature on the balance sheet, while expenditure must be highlighted in the cash flow assumptions. Detailed explanations of these suppositions in the notes to financial statements are also necessary.

Leveraging tools like Microsoft Excel for analysis and sensitivity evaluation can boost the reliability of your financial assumptions. Concise communication of these assumptions forms an essential part of a comprehensive business plan.

Visualizing Future Financials

Financial assumptions form an important part of a detailed business plan. These predictions aid in estimating costs, revenue, ROI, and expenses. By offering conservative assumptions, businesses can uphold investor credibility. Suppositions should ideally stem from your company’s history or industry standards, backed by past data and personal expertise.

Utilizing bullet points or a separate financial section can enhance understanding of these financial assumptions, depicting operational maturityand boosting reliability.

Conducting Calculations for Assumptions

Financial suppositions form the bedrock of a well-composed business plan, guiding the forecast of costs, revenue, ROI, and expenses. Ensuring these assumptions align with the information in the plan maintains investor trust. Basing assumptions on your company’s performance or industry standards is recommended. Detailed cash flow model and accurate financial statement notes help demonstrate fund allocation.

Spreadsheet programs and sensitivity analysis can help fine-tune the prediction of these assumptions.

Performing Sensitivity Analysis

Sensitivity analysis is a crucial step in developing a business plan. By observing the effects of different scenarios, businesses can dig deeper into the possible risks and uncertainties tied to their assumptions. Take a tech startup analyzing the effect of varying market penetration levels or customer acquisition costs on their revenue projections. Sensitivity analysis allows ventures to evaluate the feasibility of their business model and make more knowledgeable decisions.

These analyses helpbusinesses spot potential challenges and adjust their blueprints accordingly, guaranteeing more trustworthy and pragmatic business plans.

Highlighting Section Offers

Financial suppositions form a crucial element of a well-composed business plan. They provide a basis for forecasting costs, revenue, ROI and expenses. To fortify investor credibility, assumptions should be rooted in your personal company experience and industry standards. Detailed cash flow assumptions and prescriptive financial statement notes serve to showcase potential fund utilization. Sensitivity analysis enhances the understanding of diverse scenarios.

To achieve a successful business plan, it’s recommended to use a spreadsheet program for proper financial management and include these assumptions in the narrative or a dedicated financial section.

Summarizing Financial Aspects

In any well-constructed business plan, the role of financial assumptions is pivotal. These suppositions guide cost and revenue estimates, return on investment, and expense forecasts. Accuracy and realism in these predictions are essential to maintain credibility. Investors often scrutinize the financial section of a business plan – hence, it’s advisable to use realistic assumptions. Basing predictions on your own company records or industry standards ensures significant credibility.

Clarity canbe achieved by including cash flow predictions and detailed explanations in the financial statements. Software like Microsoft Excel can be used for managing these assumptions.

Finally, ensuring lucid communication of the financial suppositions forms a significant part of a successful business plan.

assumptions for a business plan

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What Are Business Assumptions?

In business, assumptions are ideas or beliefs that are taken for granted before taking any action. For businesses to plan, develop and implement strategies, as well as make decisions, assumptions can be made. These conjectures, also known as disclosures of uncertainty (or risk), are usually standardized.

External factors such as market trends, economic conditions, and regulations can all impact the success of a business. As a result, it’s important for businesses to continuously monitor and review their assumptions to ensure that they are still relevant and accurate.

There are many different types of business assumptions, but some common examples include:

  • The assumption that customers will continue to buy the same products or services
  • The assumption that the company will be able to find enough qualified employees
  • The assumption that interest rates will remain stable

Making assumptions is a necessary part of doing business, but it’s important to remember that they are just that - assumptions. They should be regularly reviewed and updated as needed to ensure that they are still accurate and relevant.

What happens if customers stop buying the same products or services?

If customers stop buying the same products or services, businesses will have to find new ways to generate revenue. This could mean developing new products or services or finding new markets for existing products or services. Businesses may also need to adjust their pricing to remain competitive. In some cases, businesses may need to downsize or even close if they are unable to find new sources of revenue.

What happens if the company can’t find enough qualified employees?

If a company cannot find enough qualified employees, it may be forced to lower its standards for what qualifies as a “qualified” employee. This could lead to a decrease in the quality of the company’s products or services, which could in turn lead to a decline in sales and profit. The company may also be forced to lay off workers or close its doors entirely.

What happens if interest rates go up?

If interest rates go up, businesses and consumers will both cut back on their spending. This will result in lower earnings and lower stock prices. However, stock prices will rise if interest rates fall significantly. This is because consumers and businesses will spend more when they are lower.

What other types of business assumptions are there?

In addition to the four most common types of business assumptions discussed above, there are several other important types of assumptions that businesses must make to be successful.

One of the most important types of assumptions is known as the viability assumption. This assumption states that the business idea is actually feasible and that it can be executed in the real world. This may seem like a no-brainer, but many businesses fail because they overestimate the viability of their ideas.

Another important type of assumption is the profitability assumption. This assumption states that the business will actually be profitable once it is up and running. This is obviously a very important assumption, as businesses that are not profitable are not sustainable in the long run.

Another assumption that businesses must make is the legal assumption. This assumption states that the business is operating within the bounds of the law. This is an important assumption, as businesses that operate outside of the law are at risk of being shut down or fined.

Finally, businesses must also make the assumption that they will be able to find and retain customers. This is known as the customer base assumption. This assumption is important because businesses cannot survive without customers.

As you can see, there are a variety of different types of business assumptions that businesses must make to be successful. These assumptions are important because they help to ensure that businesses can operate in a sustainable and profitable manner.

How often should business assumptions be reviewed?

It will depend on the specific business and the assumptions that have been made. However, it is generally advisable to review business assumptions regularly, to ensure that they remain accurate and relevant. Assuming that the business assumptions are accurate is a key part of any business decision-making process.

If the assumptions are not regularly reviewed and updated, then there is a risk that they will become outdated and no longer accurate. This can lead to poor decision-making and wasted resources.

It is therefore important to review business assumptions regularly and to update them as necessary. This will help to ensure that decisions are based on accurate and up-to-date information.

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15 Financial Projection Assumptions for Restaurants

assumptions for a business plan

July 8, 2022

Adam Hoeksema

If you are looking to secure a loan or investment in order to start your own restaurant, the potential lender or investor is likely to ask for financial projections.  In order to put together a realistic set of projections, you will need to base your assumptions on industry standards.  We did the research for you and pulled together 15 key financial projection assumptions for restaurants that will help you fill out your restaurant financial projections spreadsheet . These assumptions will also be very helpful as you put together a business plan for your restaurant which you can use this free restaurant business plan template as a guide.

Restaurant Revenue Projection Assumptions

Let’s start with key assumptions for your restaurant revenue projections. 

1.      How many seats does the typical restaurant have?

According to Maxsun the typical fine dining restaurant should have 12 to 20 square feet per customer.  A fast casual restaurant should have 11 to 14 square feet per customer.  

According to this answer from Quora :

  • A small restaurant has 8 to 20 tables accommodating 2 to 4 people.  This gives a small restaurant a maximum capacity of 80 seats. 
  • A medium sized restaurant typically has from 15 to 35 tables with 2 to 6 seats per table.  A medium sized restaurant would have a maximum capacity of roughly 120 seats.
  • A large restaurant could have 40+ tables with a capacity of several hundred seats. 

2.      How many times can you turn a table per meal?

According to GloriaFood , for most sit down restaurants, you can turn a table 3 times at most during dinner hours.  This assumes dinner hours from 5 PM to 10 PM with an average table turnover time of 90 minutes. 

3.      How many fast food orders can you take per Point of Sale Terminal per hour?

For a fast food or fast casual restaurant, one of the major bottlenecks can be how fast you can take an order.  To give you some idea of how many orders per hour per point of sale terminal, we looked to a study from QSR Magazine that estimated that customers spend 4.5 minutes in the average drive through.  So if you only have 1 point of sale terminal taking orders in your restaurant or food truck you can assume that you will only be able to take roughly 20 orders per hour if you can get the order and payment down to a 3 minute process. 

4.      How many orders per hour can a typical drive-through handle?

According to FESmag , it takes the typical customer 45 to 75 seconds to place an order in a drive-through.  This means that at best, if there are no delays down the line, a drive-through can handle 48 to 80 orders per hour.  

5.      How often do Americans eat out per month?

One key assumption when working on financial projections for your restaurant is how often will your “regulars” visit the restaurant.  According to a survey of 1,000 Americans, 56% say they dine out at a restaurant, get take out, or have a meal delivered 2 to 3 times per week.  This should give you some from of reference when you are projecting how often your customers might visit your restaurant each month.  

6.      How much do Americans spend at restaurants per month?

According to a Bureau of Labor Statistics poll, the average American household spends $198 per month on food prepared away from home.  Households spent roughly ⅓ of their total food budget at restaurants, take out or delivery.  

7.      How do new restaurants acquire customers?

One growing way to attract new customers is to ensure that your Google Business Profile is up to date and active.  That way when customers search for “Restaurants Near Me” on Google you have an opportunity to show up.  In the image below you can see the growing search volume trends of customers Googling “Restaurants Near Me”

From just over 16 million monthly search in the summer of 2018 to over 30 million search by June of 2022:

search volume trends of customers Googling “Restaurants Near Me”

We also put together a detailed article on 14 ways to get more customers at your restaurant .

8.      How much does a typical restaurant generate in monthly revenue?

It is impossible to say exactly how much revenue a restaurant should generate per month, but TouchBistro provides a great rule of thumb.  Restaurants need to generate roughly $150 to $250 per square foot per year in sales in order to breakeven. 

If you have a 3,000 square foot restaurant, you will want to generate roughly $600,000 per year in sales ($200 per square foot) to have a good chance of breaking even. 

9.      What percentage of restaurant revenue is typically carry out, delivery or drive through? 

According to Statista , before COVID, the average full service restaurant had 17% of total sales as carry out. That number increased to 38% in 2020 during the height of the pandemic. As you plan your restaurant, you might assume that carry out could be higher than the pre-pandemic levels as consumer behavior has changed.

Restaurant Expense Projection Assumptions

Next, let’s look at some assumptions related to restaurant expenses. 

10. How many tables can one server handle? 

According to Qwick the average server can manage roughly 4 tables at once.  We have seen reports of servers handling up to 8 tables at once, but a more sustainable approach seems to be in the 4 tables per server range. 

11. How many orders can 1 cook support per hour? 

This will depend on the complexity of your restaurant’s menu, but according to Qwick , the average restaurant will need roughly 4 cooks per 50 tables.  

12. What is the average food cost as a percentage of revenue for a restaurant? 

According to Lightspeed , the average food cost for a restaurant is between 28 and 35% of revenue.

13.  What is the average labor cost as a percentage of revenue for a restaurant?  

According to Upserve , most restaurants aim to keep labor costs between 20 to 30% of revenue.  For a fast casual restaurant you might be toward the lower end of the range; whereas, a fine dining restaurant may be 30% or more for labor cost due to the higher level of service expected. 

Restaurant Projected Profit Assumptions

Finally, let’s look at some expected profitability assumptions for your restaurant.  

14. What is the average profit margin for a restaurant? 

According to Toast, restaurant profit margins usually fall between 3 and 5 percent, but could reach as high as 15%.  If you have used one of our restaurant financial projection templates and have a projected profit margin of greater than 15% you might want to take a second look at your numbers and make sure you aren’t being overly optimistic.  

15.  How long does it take for a restaurant to breakeven? 

It is ok if your restaurant or bar doesn’t breakeven in the first year, but according to BinWise you should expect to reach a break even point in year 2 or 3. 

If you need any help developing your restaurant financial projections, please do not hesitate to contact us , we would be happy to help! 

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

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How to Start Poke Bowl Business

FEB.27, 2024

How to Start a Poke Bowl Business

Poke bowls have exploded in popularity over the last few years. According to a report , the global market was worth $4.46 billion in 2022 and is forecast to grow at an 18.55% CAGR through 2028, potentially reaching $12.38 billion. With consumers desiring fresh, customizable choices, this business presents a profitable prospect.

What is a pork restaurant or poke bar? A poke restaurant typically specializes in serving poke bowls, offering a variety of fresh ingredients and flavorful combinations. Customers can customize their poke bowls by choosing from various toppings, bases, and sauces at the poke bar.

What’s in the poke bowl food? The contents of a poke bowl include raw seafood like tuna or salmon marinated in soy sauce, sesame oil, seaweed, and spices. Additional ingredients often added are white or brown rice, mixed greens, edamame, avocado, cucumber, carrots, and many sauces.

Origin of poke bowl – The origin of poke bowl traces back to Hawaiian cuisine, where local fishermen would season the leftover cuts of their catch with salt, seaweed, and inamona (roasted kukui nut), then serve it over rice.

This article will guide you through the process of starting a poke bowl business. By following our restaurant business plan sample , you will learn how to start a poke restaurant in no time.

Conduct a Market Research

Market research is gathering and analyzing information about your potential customers, competitors, and industry. To conduct a market research for your business, follow these steps:

Step 1: Identify your target customers and ideal location using our feasibility study for restaurant .

Step 2: Analyze competition.

Step 3: Survey potential customers.

Step 4: Evaluate market trends.

Step 5: Research costs and regulations.

Step 6: Define your brand.

Step 7: Estimate demand and potential sales.

Step 8: Analyze the data and draw conclusions

Business Model

A business model is the way you create, deliver, and capture value for your customers. It defines your value proposition, revenue streams, cost structure, customer segments, channels, customer relationships, key resources, activities, and partnerships.

You can choose from the following models for your poke bowl franchise:

  • Mobile truck
  • Delivery service
  • Subscription
  • Vending machine
  • Pop-up shop

Develop a Poke Bowl Business Plan

A business plan is a professional document that describes your idea, goals, strategies, and actions. It helps you communicate your vision, secure funding, and guide your operations. To develop a poke bowl plan, use a template like this food truck start-up business plan or hire a professional plan writer like OGSCapital.

Your plan should include the following sections:

  • Executive summary
  • Company description
  • Market analysis
  • Competitive analysis
  • Marketing plan
  • Operations plan
  • Management team
  • Financial plan

Tips for Developing a Plan

  • Use a template to help save you time and effort. For example, a food delivery service business plan .
  • Be realistic and avoid making unrealistic or exaggerated claims or assumptions.
  • Be specific and avoid vague or general statements or terms.
  • Be concise and avoid unnecessary or redundant information or jargon.
  • Be professional by proofreading and editing your plan regularly.

Marketing Plan

A marketing plan outlines your marketing strategies and tactics to achieve your goals. It helps you identify your target market, communicate value propositions, and differentiate franchises from competitors.

Here are the main components to create a marketing plan:

Market Segmentation

Market segmentation is dividing your target market into smaller groups based on common characteristics, needs, or preferences. It helps you tailor your marketing efforts to each segment and increase customer satisfaction and loyalty. 

Here are some ways to segment your market for your restaurant:

  • Demographic segmentation
  • Geographic segmentation
  • Psychographic segmentation
  • Behavioral segmentation

Promotional Strategies

Promotional strategies are the methods and techniques you use to communicate your product and brand to your target market. They help raise awareness, generate interest, and persuade customers to buy your poke bowls. 

Here are some examples of promotional strategies for your poke restaurant:

  • Social media marketing
  • Influencer marketing
  • Email marketing
  • SEO marketing
  • Content marketing
  • PR outreach
  • Local events
  • Loyalty program
  • Partnerships
  • Billboard/outdoor ads
  • Grand opening event

You can also combine these strategies to create a more effective and integrated marketing campaign.

Financial Projections

Financial projections are the estimates of your future financial performance based on your assumptions and calculations. They help you plan your budget, monitor your cash flow, and evaluate your profitability and growth potential. 

Here are the main components to create financial projections for your poke bowl restaurant:

Revenue Assumptions

Revenue assumptions are the factors that affect your sales and income. Make realistic and reasonable assumptions based on your market research, franchise model, and marketing plan.

Some examples of revenue assumptions for your poke franchise include:

  • Average ticket of $12
  • Monthly sales forecast of a poke bowl business is at $15K in Year 1
  • 65% gross margins
  • $3K monthly from catering & delivery
  • 10% sales increases for return customers, 5% for new annually
  • 15% seasonal spikes in summer, 10% dips in winter
  • 25% one-time revenue boosts from local events quarterly
  • 20% revenue from online orders & loyalty program by Year 2
  • 2% annual price increases

Projecting Expenses

Projecting expenses are the estimates of your future costs and expenditures based on your assumptions and calculations. They help you manage your resources, control spending, and improve efficiency and profitability.

The main potential expenses for your poke in bowl franchise include:

  • Ingredients
  • Packaging materials
  • Permits and licenses
  • Staff wages and benefits
  • Professional services
  • Repairs and maintenance
  • Delivery fees
  • Training and onboarding
  • Office supplies

Launch Your Poke Bowl Business Successfully with OGSCapital

At OGSCapital, we have the experience and expertise to help you start a successful poke bowl franchise. We are a team of professional plan writers and franchise business plan consultants who have helped clients worldwide raise funding to meet their requirements. Here are some reasons why you should choose OGSCapital for your poke bowl plan:

  • We offer customized and high-quality plans
  • We have extensive knowledge and insights into various industries
  • We can help you access the resources and opportunities to launch and grow your franchise
  • We provide ongoing support and guidance

Contact us today, and let us help you turn your profitable poke bowl vision into reality.

Frequently Asked Question

Why is the poke bowl business so profitable?

The poke bowl business is profitable because it offers a healthy, customizable, and convenient dining option that appeals to many customers. According to industry experts, the average poke bowl profit margin in the US is around 15-20%.

Is it expensive to start your own poke bowl restaurant?

Yes, opening a poke restaurant is expensive. The typical startup costs for a poke bowl restaurant in the US range from $100,000 to $465,000. However, you can opt for a lower-cost alternative like a poke bowl franchise costing a few thousand dollars to start.

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

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  1. Financial Assumptions & Your Business Plan [Updated 2024]

    Financial assumptions are the guidelines you give your business plan 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.

  2. How To Write A Business Plan (2024 Guide)

    Describe Your Services or Products. The business plan should have a section that explains the services or products that you're offering. This is the part where you can also describe how they fit ...

  3. Business Plan Assumptions

    Business Plan Assumptions List Inflation rates and foreign exchange rates - effect on sale and purchases - effect on assets and liabilities Sales and marketing - level and timing of sales demand - exporting considerations - pricing strategy, high or low - trade and early payment discounts - advertising and promotion costs - warranty costs

  4. 14 Types of Business Assumption

    Business assumptions are things that you assume to be true for the purposes of developing a strategy, making decisions and planning. They are commonly documented in business plans and business cases as a disclosure of uncertainty and risk.

  5. Questioning Key Assumptions in Your Business Plan

    Consider the five following key assumptions, and you'll have a business plan—and future—in which you can be confident. Key Takeaways A business plan is a document that helps a business communicate and organize its plans and strategies for the future. Sufficient market research is perhaps the most important part of starting a business.

  6. Establishing Reasonable Planning Assumptions

    These assumptions are what support and quantify the projections that you'll make in the plan. First, you're going to have to make some assumptions about the general business environment. By and large, these assumptions tend to focus on issues such as interest rates, demographics, and other factors that all businesses face. Second, you're going ...

  7. What Are the Key Assumptions of a Business Plan?

    Business plan assumptions examples range from financing, consumer base and profitability to management and resources. Key Assumption 1: Finances One of the business plan assumptions examples is finances. Do you have the funding to run your company until it becomes profitable?

  8. What Are the Key Assumptions of a Business Plan?

    Writing up a business plan involves making a few assumptions -- including that there's a sufficient customer base for the product. An investor or partner will want to see that you've done...

  9. The Value of Business Plan Assumptions

    There is no set list. What's best is to think about those assumptions as you build your twin action plans. If you can, highlight product-related and marketing-related assumptions. Keep them in separate groups or separate lists.

  10. List Business Plan Assumptions

    There is no set list. What's best is to think about those assumptions as you build your twin action plans. If you can, highlight product-related and marketing-related assumptions. Keep them in separate groups or separate lists. You will use your business plan assumptions often

  11. What Are Key Assumptions of a Business Plan?

    Key assumptions are the underlying beliefs and assumptions that shape the way a business operates and makes decisions. They can be related to various aspects of the business, including its target market, competitive landscape, revenue streams, and financial projections.

  12. Business Plan: What It Is + How to Write One

    A business plan is a written document that defines your business goals and the tactics to achieve those goals. A business plan typically explores the competitive landscape of an industry, analyzes a market and different customer segments within it, describes the products and services, lists business strategies for success, and outlines ...

  13. STRATEGIC ASSUMPTIONS: THE ESSENTIAL (AND ...

    These assumptions represent the raw material — the opinions, beliefs and more often, the hopes, of the management team — on which the projections are based. They usually receive very close scrutiny, especially since financial projections are only as valid as the assumptions upon which they are based.

  14. Business Assumptions: Understanding Key Predictions in Entrepreneurship

    Some key types of business assumptions that can play a significant role in shaping an entrepreneur's business model and strategy include revenue assumptions, market size assumptions, and operational expense assumptions. Revenue Assumptions

  15. How to Make Accurate Financial Assumptions For Your Business

    3. Assess Current Performance. Now it's time to analyze your current and historical financial performance for each of your assumptions. For instance, if you want to make an assumption for monthly revenue growth, look at your performance year-to-date (YTD) to give you a baseline before you start making future assumptions.

  16. Strategic planning: managing assumptions, risks and impediments

    The dictionary defines an assumption as follows: " something taken for granted; a supposition ". Assumptions form the basis of strategies, and those underlying assumptions must all be fully vetted.

  17. How to Create a Project Assumptions List: Examples and Template

    Yes. And in this post I'll go over the following items: The benefit of identifying and creating a list of project assumptions Different types of project assumptions - including examples How to identify and manage project assumptions But first, it helps to understand just what assumptions in project management are. What are Project Assumptions?

  18. What Are Financial Assumptions in a Business Plan?

    Financial assumptions are an integral part of any business plan. They provide a foundation for the financial projections and help investors and stakeholders understand the underlying assumptions behind the numbers. Financial assumptions can cover a wide range of topics, including revenue growth, cost of goods sold, expenses, and capital ...

  19. What Are the Financial Assumptions on a Business Plan?

    Assumptions for balance sheet presentations should be conservative and based on reasonable expectations of asset acquisitions in the coming five years. Of particular concern to lenders and...

  20. Understanding the Role of Business Plan Assumptions in Success

    Financial assumptions are a fundamental element of a well-prepared business plan. These assumptions pave the way for predicting revenue, costs, return on investment, and expenses. It is vital to ensure that the assumptions are precise and align with the evidence provided in the business plan. For maintaining credibility with investors, it's ...

  21. Startup Financial Assumptions

    The cost assumptions based on customer acquisition are some of the most important financial assumptions we'll make in our business plan and typically represents one of the largest startup expenses. Note that in these examples we use "visitor" to mean anyone coming to buy from us, whether it's to our website or to our storefront.

  22. How to make assumptions for the financial projections of your business plan

    Personnel Expense Assumptions: My business will have _____ (ex: 2, 4, 10, etc.) employees by month ____ (ex: 1, 6, 18, etc.). ... Every common assumption you find above are designed to help you ...

  23. What Are Business Assumptions?

    In business, assumptions are ideas or beliefs that are taken for granted before taking any action. For businesses to plan, develop and implement strategies, as well as make decisions, assumptions can be made. These conjectures, also known as disclosures of uncertainty (or risk), are usually standardized.

  24. 15 Financial Projection Assumptions for Restaurants

    These assumptions will also be very helpful as you put together a business plan for your restaurant which you can use this free restaurant business plan template as a guide. Restaurant Revenue Projection Assumptions. Let's start with key assumptions for your restaurant revenue projections. 1. How many seats does the typical restaurant have?

  25. How to Start Poke Bowl Business in 2024 (+Franchise)

    A business plan is a professional document that describes your idea, goals, strategies, and actions. It helps you communicate your vision, secure funding, and guide your operations. ... Revenue assumptions are the factors that affect your sales and income. Make realistic and reasonable assumptions based on your market research, franchise model ...