How to Build a Credible Five-Year Plan for Private Equity Investment

How to Build a Five-Year Plan for Private Equity Investment

If you're looking to build a five-year plan for private equity investment, the quality of the assumptions matters far more than most founders realise.

Private equity firms are not short of ambitious growth stories. What they are looking for is credibility. A plan that is grounded in evidence, supported by data, and capable of standing up to scrutiny during diligence.

One of the most common mistakes founders make is confusing ambition with believability.

Start with Evidence, Not Imagination

A five-year plan aimed at private equity should begin with what is already known to be true.

The base plan must be built on fact and history, not entirely new initiatives that have yet to be proven. This is the plan that underwrites the investor’s core returns, and therefore it needs to be defensible.

In practice, that means growth assumptions should be rooted in:

• Historic customer and client wins

• Proven average contract values and renewal behaviour

• Expansion within markets where the business already operates, or closely adjacent markets where there is an established track record

If the business has grown in a certain way historically, investors will expect the future plan to reflect that reality. A sudden step-change in performance without evidence immediately raises questions.

Every Assumption Will Be Tested

You should assume that every line of a five-year forecast will be challenged by the investor.

Growth assumptions in the base case need to survive both:

• Financial diligence, where numbers are tested for consistency and realism

• Commercial diligence, where customers, competitors, and market dynamics are assessed

If a buyer cannot validate how growth has been achieved historically, they will not believe forecasts that suggest materially faster growth going forward.

This is not scepticism for the sake of it. From an investor’s perspective, unproven assumptions introduce delivery risk, and delivery risk directly impacts returns.

Where Upside Plans Fit In

Upside plans absolutely have a role in a private equity investment case.

This is where founders can be more ambitious and forward-looking. Upside initiatives often include:

• International expansion

• Launching new or adjacent products and services

• Developing new routes to market or distribution channels

Private equity investors are usually very happy to consider these opportunities. They often form an important part of the strategic narrative. What investors are not willing to do is rely on them. Upside is viewed as optional value creation, not the foundation of the deal.

The Most Common Error Founders Make

Where plans tend to fall apart is when the upside becomes the base case.

If the core five-year plan depends on entering new markets, launching untested services, or executing strategies with no historical or live evidence, the investor is being asked to take a leap of faith.

When the base case is overly speculative, investors either:

• Reduce valuation

• Introduce more conditionality, such as earn-outs

• Or walk away entirely

A Simple Rule of Thumb

A credible five-year plan for private equity should follow a clear structure:

• Base plan: demonstrable, provable, capable of being diligenced

• Upside plan: attractive, strategic, ambitious, but optional

If the base plan does not deliver sufficient growth on its own, the issue is rarely the quality of the idea. More often, it is a signal that the business is not yet ready for private equity investment.

Why This Matters

Private equity investors back execution, not hope. A grounded base plan de-risks the investment and builds confidence that management understands both the business and the market it operates in. Upside then becomes exactly what it should be, additional value rather than required value.

That distinction is subtle, but it makes a material difference to valuation, deal structure, and ultimately whether a transaction completes.