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Chapter 17: Finish the Financials - Page 17.2

Standard Industry Profiles

Whenever possible, a business plan should compare projected numbers to standard industry numbers of the type we discussed earlier in Gathering Information: The Business You're In. We show an example here, in which the sample case's main business numbers for Year 1 through Year 3 are compared to a standard industry profile, shown in the column named "Industry Profile."

Standard Industry Comparison

This sample table compares the plan to industry standard financial profiles.

Don't expect your business to fit exactly into any standard category. For example, is the corner service station also a convenience store? Which category should it use? General profiles are based on averages, and no real business is ever average. As you include standard ratios in your plan, it is more important to explain how your company is different than to be able to match your company exactly to industry averages. Gathering Information: The Business You're In lists sources for more information on business ratios, including standards for your type of business.

Our sample company, for instance, has much higher Accounts Receivable than average, but less Inventory, and also lower Other Current Assets. Its Gross Margin is lower than the rest of the industry, but Profit Before Interest and Taxes is higher. In this case the plan text should explain why a well-run company might vary from average numbers. Some readers might worry about unrealistic financial forecasts.

 

Copyright © Timothy J. Berry, 2006. All rights reserved.