Business Plan – a Real Tool or an Excel Chart that accepts everything?

Periodically, over the years, I went through the difficult path inherent to the cycle of adjustments and simulations of a Business Plan. 

The common tendency for a decision maker with an emotional attachment to a project is to force a financial model that demonstrates the project’s viability. That is, as if the financial model was purely pro-forma, a bureaucracy to be fulfilled, the idea that “everything fits in Excel”. 

Our tendency as financiers is more about trying to ensure the sustainability and robustness of the projects that we’re handling. Avoid that each year we have to go through significant updates. Plan for the worst, to ensure the best. A financier’s nightmare is receiving bad news that were, in fact, possible to anticipated. The default day. 

Naturally, a Business Plan aims to anticipate the future, so the respective assumptions can always be subject to review and simulation. What seems less credible is the exercise that Valuation Business Modeling professionals are systematically pressured to do: taking rational assumptions or based on observed facts and contesting those facts with the sole objective of producing an acceptable result, to convince a stakeholder or to receive an incentive. 

This, dear reader, is a real shot in the foot. A shot in the foot that, later on, someone will pay for in the form of financial default – with their workers, with the state or with the financiers or even with all of them at the same time. 

Creating justifiable numbers is the foundation of a long-term reputation. And the best way to create a track-record that brings investors and financiers together, that helps when things go wrong and rewards when things go well. 

Of course, I don’t confuse the idea of ​​seriousness in the exercise of financial modeling with a rigid posture. But if I create a base case, the simulations should constitute acceptable variations to that base case (10 to 20% maximum). Otherwise, what I am doing is demonstrating the unpreparedness and volatility of my base case. 

The industry and financial modeling professionals should look at this and affirm international standards and good practices or they will continue to contribute to the devaluation of this exercise and this profession. Whether it’s a new hotel or an improvement project for an existing unit. 

Perhaps on that day, the so must talked sustainability will reach the financial department of the hotels. 

I am on board, if some day, this boat goes to sea.

Luís Barbosa
Financial Architect
ABC Sustainable Luxury Hospitality
Proud Ambassador Global Wellness Institute
Happiest Places to Work – Awards

Financial Wisdom | Key Strokes: Rigor, Transformation, Making it Happen

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