Financial Plan Planning

The Financial Plan is often missing or weak in Commercialization Plans I review.  That is understandable because to do it credibly, you need a lot of well supported data.  You need to produce credible numbers on how you will Make It, Sell It, Finance It.  This is usually placed at the end of the Commercialization Plan, and hopefully pulls it all together.  And the difference between weak and strong is in the level of detail and the basis and support for your assumptions and projections.

The Table on the right provides a few examples of the costs along the path to developing and selling a market-ready product.  Gathering the cost and revenue information relevant for your business model is a good place to start.

Next, hopefully you have already identified exactly who you will target as customers initially and long term, and why you will target them, and how you will reach them so you can estimate the customer acquisition costs.  For products and devices, think about how to get the first 3 years’ worth of customers, and “evidence” that the strategy will work – that’s your Marketing, Sales, and Product Launch Plan.

Then think about the financial and human resources needed to get you there (product development, patent/legal, regulatory approval, manufacturing,  establishing distribution channels, marketing and sales, customer acquisition costs, etc.) and show specifically how you will obtain the financial and human resources needed to achieve this – that is a Financial Plan.  For life science and medical technology, it might be more appropriate to map out a partnering or licensing strategy and a regulatory strategy, and how you will create value through achieving these key milestones.

A Word on Metrics and Milestones – What are the key business drivers, metrics, and milestones that need to be achieved to reduce business risk and advance the business?  I seldom see this discussed with concrete details, so if you include this you will set yourself above some of the competing proposals.  The chart on the left which ties together the key milestones for product/technology, market/customers, and Financing can be an effective way to summarize your Financial Plan.  There might be other Tracks important for your business model, e.g. Management Team, Business Model, Strategic Partners, Regulatory Milestones that you can include.

Here is a checklist of things to consider for your Financial Plan:

  • Revenue projections (bottom up) and assumptions
  • Key stages to commercialization and the associated milestones timing and cost to get there (e.g. product development, regulatory, product testing, first customers, breakeven cash flow, etc.)
  • Source of capital to achieve the milestones
  • Operating costs including customer acquisition costs and costs to grow/scale the business
  • Net profit growth projection or “value creation” projection
  • Cash flow projection and strategy to cover shortfalls
  • Validation/commitments (e.g. investors, customers, licensees, strategic partners)
  • Assumptions, validation, evidence

David Linz