Creating Pro Forma Documents
William L. Dougan
Irvin L.Young Professor of Entrepreneurship
Professor of Management
UW-Whitewater
Six pieces
Revenue Model
 Profit and Loss (P&L)
 Cash Flow
 Balance Sheet
 Startup Capital
 Notes

Order of Importance
Cash Flow
 Revenue Model
 Notes
 Startup Capital
 Profit and Loss (P&L)
 Balance Sheet

Order of Construction
Revenue Model
 Startup Capital
 Cash Flow
 Profit and Loss (P&L)
 Balance Sheet
 Notes

Business Plan Software

Placed in a spreadsheet or a Business Plan
model
◦ Business Plan Pro
◦ Business Mentor
◦ PitchThenPlan
 http://www.pitchthenplan.com/homepage.htm
◦ Kauffman Template
 http://www.bizstartsmilwaukee.com/BizFiles/Templa
tesForms/FastTrac_MyFinancialPlanV6.xls
Revenue Model
Your story about how you will sell your
products/services
 Based on monthly quantities
 Depends on Units or Dollars or both

◦ Boat Manufacturer Units
◦ Retail store  Units are a problem
◦ Multiple Products  Add effects of each
product

Additive Linear Model
Additive Linear Model
Month 1
2
3
4
5
6
7
8
9
10
11
12
Prod 1
Units
Price
0
0
10
15
21
25
35
45
60
90
100
150
0
0
1000
1000
1000
1000
1000
1000
1500
1500
1500
1500
TOTAL
0
0 10000 15000 21000 25000 35000 45000 90000 135000 150000 225000
Month 1
Prod 2
Units
Price
2
3
4
5
6
7
8
9
10
11
12
0
0
50
75
90
100
120
140
180
220
300
450
0
0
100
100
100
100
100
90
90
90
90
80
TOTAL
0
0
5000
7500
Month 1
TOTAL
2
3
4
5
0
9000 10000 12000 12600 16200 19800 27000 36000
6
7
8
9
10
11
12
0 15000 22500 30000 35000 47000 57600 106200 154800 177000 261000
Revenue Model Factors
 Discrete, linear
decomposition of a
multiple, interacting components
◦ Separate effects of multiple
products/services
◦ Startup delay
◦ Production/Sales Ramp-up
 Diffusion
 Learning
◦ Seasonality
Sales on Account

Not all Sales are cash sales
◦ Large Durable Goods like boats and Heating Systems
◦ Most Corporate Sales are on Account
SO…….. we need a model for how Sales are
Made and Paid
 Total Sales – Cash Sales (as %) = Sales on Account
= Accounts Receivable for first month
 Accounts Receivable for first month - % paid first
month = Accounts Receivable for second month
 Accounts Receivable for second month - % paid
in second month = Accounts Receivable for Third
month (OR Bad Debt Expense)

Startup Costs

List and numerical
equivalent of “stuff” you
need to start business
◦ Land/building
◦ Equipment




Operational
Office
Vehicle
Furniture
◦ Professional Fees
 Accountant
 Lawyer
 Consultants
◦ Raw Materials/Supplies
◦ Insurance





Liability
Building
Bonding
Life/Key person
Health
◦ Membership Fees
◦ Advertising/promotions
Reserve for Wages/Salaries
◦ Banking
 Line of Credit
 Account Initiation
 Loan Initiation
Cash Flow
Checkbook/Cigar box model
 Sources/Dispersements and Balance of
Cash by Month
 Documents Inflows and Outflows
 Big rule CASH BALANCE CAN’T BE
NEGATIVE

Cash Items SOURCES:

Cash Sales
◦ (Different than Sales on
account)



Collections from AR
Loan Proceeds
Equity contributions
◦ Cash
◦ Capital Goods




Interest
Grants
Prizes
Paid–in Taxes
Cash Items DISPERSEMENTS
















OPERATING EXPENSES
Cost of Materials
Wages
Salaries
Income Tax
FICA
Benefits
Sales Taxes
Insurance
Utilities
Advertising
Bank Charges
Dues and Subscriptions
Licenses and fees
Marketing/Promotions
Meals and Entertainment

Office Expenses

Professional Fees

Property Taxes

Rent

Maintenance

Shipping/Delivery

Utilities

Telephone

Training

Travel

Vehicle

CAPITAL COSTS
◦ Capital Purchases
◦ Estimated Tax Payments
◦ Reduction of Principal
◦ Interest Payments
◦ Owners Draw
Opening Cash Balance Month 1
+ Cash In from Sources
 - Cash Out for
Dispersements
 = Ending Cash Balance
 Which Becomes
(for next month)

Opening Cash Balance Month 2
+ Cash In from Sources
 - Cash Out for
Dispersements
 = Ending Cash Balance
 Which Becomes
(for next month

General Form Cash Flow
Profit and Loss
Uses much of the same information as
Cash Flow
 Major exceptions

◦
◦
◦
◦
Depreciation
Inventory
Receivables
Payables
Profit and Loss
Net Sales
- COGS
Gross Profit
- Operating Expenses (See List from Cash Flow)
Operating Profit (EBITDA)
-Depreciation
- Debt Amortization
EBIT
- Interest
EBT
- Income Taxes
+ Interest Income
+ Royalties
-
NET INCOME
Balance Sheet

Metaphor of Balance
Balance Sheet
Balance Sheet Issues
Balance Sheet is Snapshot, Cash Flow and
Income Statement are Time Exposure
 Assets – Liabilities = Equity (plug Figure)
 CAN’T HAVE NEGATIVE EQUITY

◦ Can have negative retained earnings, but need
paid-in capital to balance it
◦ If Equity is Negative, you need more capital or
lowered liabilities

CAN’T ADD ASSET BALANCES FROM
MONTH TO MONTH
Notes
These provide the justification for values
on the other sheets
 Act as a source of information about the
assumptions used in creation of the other
documents
 Don’t have to be elaborate, just have to
show a short justification for why each
number is the way it is

Resources

Real Estate Cost 
◦ www.wisconsinhomes.com
◦ http://www2.bizjournals.com/bizspace/milwaukee/






Salaries  www.salary.com
Utilities  call utility companies
Mortgage Calculator  All over internet
Insurance  call agent
Industry  RMA Statement Studies + Value
Line + Associations Unlimited (for Industry
info)+ Dunn and Bradstreet
General  http://library.uww.edu/