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Let's go to the financial forecast area of your real estate investment business plan. That's a fairly important area, certainly one that most people, if they are a pretty sophisticated private lender, they are probably going to go to the financial forecast next, after the Executive Summary. They're going to read the Executive Summary and then they're going to want to go see the numbers.
Provide the Big Picture
As far as a financial forecast is concerned, there are a lot of ways you can do it. You can do it in very basic summary format, or you can do it in a lot of detail. I would suggest that you do both.
At least initially you give people the big picture, maybe a 12-month analysis or a 5-year analysis, and we'll talk about both of those in a minute, but you give it to them in a fairly summarized format. Maybe revenues, maybe some expenses, and basically some profit.
Then you can provide them, if they want, with more detail behind that if they want to go see kind of how each of those numbers are developed. It's important that you don't give everybody a super, super detailed analysis right off the bat.
I think what happens is if you've got too much detail they can't figure anything out. You need to kind of lay it out for them in kind of a broad sense, and then provide them with more detail behind that. Again, this is probably one of the most key areas of the entire business plan, and I would suggest you spend a fair amount of time on developing your financial forecast.
Importance of First Year Analysis
The way I've always done it is the first year you do on a per month basis, for 12 individual months. You can start with January if you want, or you could just do a hypothetical 12 months, it's not that important either way, as long as you lay out the first year on a fairly short-term month-by-month basis, because most people are going to want to see how you're going to get through the first year.
They understand if you can get through the first year, at that point things will probably get easier as the rents go up and things like that. It probably should get easier over time. The first year really needs to be on a month-by-month basis.
Four Year Annual Analysis
Then I would suggest that I think most well-done business plans will have a 5-year total horizon. So you're going to have one year that's going to be monthly, and then you're going to have four years that are going to be annual. At that point, I don't think you need to see month to month, but I certainly think the first year analysis needs to be done.
