Assumptions
Clearly identified operating and financial drivers, sources, timing and management inputs.
TRACEABLE ASSUMPTIONS
From activity to financial result.
Revenue should be traceable to units, customers, projects, utilization, occupancy, price or another operating driver. Payroll should follow the hiring plan. Capital spending should match the implementation schedule. Financing should flow through cash, debt service and the balance sheet.
Where current operations exist, historical performance provides the starting point. For a new operation, assumptions are grounded in researched benchmarks, capacity and management’s plan—not reverse-engineered to reach a desired profit.
Typical model components
Operating model
Revenue capacity, price, volume, utilization, headcount, direct cost and working-capital drivers.
Financial statements
Integrated income statement, cash flow and balance sheet where appropriate to the case.
Investment and funding
Sources and uses, capital expenditures, equity, debt, interest and amortization assumptions.
Scenarios
Base assumptions and relevant sensitivities that show what changes the operating outcome.
Checks and outputs
Break-even, cash adequacy, statement integrity and other checks appropriate to the intended use.
When purchased with a business plan, the Word narrative and Excel model use the same operating assumptions and case snapshot.