Ruth Wairimu, East Africa Portfolio Manager, Acumen 

Founders, especially first-time founders in the early stages of their business, say one or two years in, often haven’t fully defined their revenue drivers or their cost drivers, for example, and in some cases have never done a financial model or financial projections.

One way to get over that initial hump is to benchmark against similar companies. Companies that are publicly listed, for example, tend to have better outlines of revenue drivers, cost drivers, and margins. So, basing your financial projections on these outlines may give you more confidence in your own projections.

Secondly, you need to state clear and defensible assumptions. So what happens is that the assumptions founders are looking at might not be based in reality, but in guesswork. To build confidence in your projections, you need to speak to your assumptions. They need to be rational and grounded in something, such as industry standards, historical patterns, or insights from experts in your industry. So they need to be based on something for them to be defensible and not just based on guesswork. With that, you can tell a more compelling story, and stakeholders will have more confidence in the numbers.

The third point is scenario planning. To provide a dynamic financial model that inspires confidence, you need to show several scenarios. So oftentimes the scenarios that you'll have in your financial projections are three scenarios. 

• You have a base case. So in the base case, an investor would be looking to understand this is the most realistic growth trajectory of this business. 

• Then there is a worst case.

• Then there's the last one which is the best-case scenario. The best-case scenario is where you should be, you should show how big can this business get.

Key takeaways

• Benchmark against similar companies to strengthen your financial projections.

• Ground your assumptions in data, not guesswork, to build credibility.

• Show multiple scenarios to inspire confidence in your model and vision.