IRR Business

By | March 10, 2016

Most people to perform a financial plan, only based its study on the financial statements of the project, such as general or State balance of losses and profits, according to those data to determine whether or not the business is profitable. But on the financial side of a business plan, 3 criteria must be included to determine whether the project is feasible and desirable to investors or not. 3 Criteria or methods are used in the elaboration of a professional business plan, that allows us to decide if it’s worth investing in the business, the VAN (net present value), IRR (internal rate of return), and the Payback. To calculate the RANGING, first it is necessary to build a cash flow of the coming years of the business, estimates of sale must be made with all the correct parameters for this is convenient knowing to do a market study. Once the cash flow, may proceed to calculate the VAN. The VAN is the sum of all winnings of the project in the coming years, brought to present value, i.e. what would do everything What won today same. With a range greater than zero, one can say that it is feasible to start the business.

The IRR is the profitability that has been built cash flow, the criterion of this method is fairly intuitive, if the IRR is greater than the (rate expected by shareholders) go, business can be conducted. And the last, the Payback, which is the estimated time that recovers the investment business, this was criterion for consideration of the investor, he decides if you can wait or not estimated in the Payback time. These 3 methods can not miss in a business or financial plan, the criteria are globally recognized by consultants and banks, and it is of utmost importance for decision-making. We must not forget that to make a good cash flow, should be estimates of supply and demand in the coming years. These estimates must be made within the market study. I recommend using 3 methods together, because the information can be supplemented, and the investor acquires a broader view of the panorama future. Best wishes!