We all know someone who opened a restaurant because they "love food". Or who imported a product because "it sold well in another country". Or who launched a new business line because "the market looked good". And we all know how those stories usually end. Not because the idea was bad. But because the decision was made with optimism, not analysis.
Why do we analyze investments poorly?
There are three biases that affect almost all of us:
Optimism bias: We overestimate revenue and underestimate costs. Always.
Confirmation bias: We look for information that confirms what we already want to do, not information that challenges us.
Sunk cost bias: Once we start investing, it’s hard to stop even if the signals are bad.
A good financial model doesn’t eliminate these biases, but it exposes them. It forces you to be explicit about your assumptions and see what happens if things don’t turn out as expected.
What an investment analysis must include
- Revenue projection with clear, defensible assumptions
- Full cost structure (including the non-obvious: team time, opportunity costs, additional working capital)
- Break-even: when does it start generating cash?
- Scenario analysis: what happens if sales are 30% lower? If costs are 20% higher?
- IRR and NPV: is this investment better than other alternatives?
A real example
Thomas wanted to open a second location for his services company. “The numbers looked good.” When we built the financial model, we discovered the break-even was in month 18, and that he needed three times more working capital than he had estimated. Also, in the conservative scenario, the IRR was lower than the cost of his debt.
Thomas decided to wait six months, strengthen his current operation first, and open with a stronger structure. Today that second location is doing well, because it opened at the right time.
At MOVA we build the financial models you need so your investment decisions are backed by analysis, not optimism.
