Financial Pro Forma
Session 20-23
J0704-Business Plan
Show me the money
It is better to have a hen
tomorrow than an egg today –
Thomas Fuller
J0704-Business Plan
Financial Pro Forma
There are the three pro forma, composed of several
financial statement:
•
Pro Forma Income Statement
•
Pro Forma statement of cash flow
•
Pro Forma Balance Sheets
Even though these financials are forecast, the
numbers are determined by logical and real
assumption
J0704-Business Plan
Financial Pro Forma
Start-up Costs
•Purchase or initial lease or rent
•Opening inventory
•Lease or rent deposit
•Supplies
•Utility deposits
•Signage
•License and permit fees
•Marketing printed materials
J0704-Business Plan
Financial Pro Forma
Start-up Costs
•Leasehold improvement
•Advertising
•Insurance
•Accounting and legal fees
•Equipment
•Hiring expenses
•Fixtures and furniture
•Training expenses
J0704-Business Plan
Financial Pro Forma
Start-up Costs
•Freight and installation
•Grand opening
•Sales taxes
•Working capital requirement
J0704-Business Plan
Financial Pro Forma
Accounting method and bookkeeping system:
•Accounting method:
•The cash method
•The accrual method
•Bookkeeping system:
•Single entry
•Double entry
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The Elements of Financial Pro
Forma
•Financial summary
•Important assumption
•Opening balance sheet
•Pro forma income statement
•Break even analysis
•Pro forma statement of cash flow
•Pro forma balance sheets
•Business ratio
J0704-Business Plan
Financial Summary
•Key assumption
•Break even point
•Expectation of overall in the first year
•Expectation of growing after peak performance reached
•Peak performance of:
•Sales
•Cost of sales
•Non cost sales operating expenses
•Profit
J0704-Business Plan
Important assumption
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•
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•
•
•
•
•
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Market share
Average monthly sales
Cash sales
Cost of sales
Average monthly cost of
sales
Freight (exclude service
business)
Payroll taxes and benefits
General account payable
General payment days
Interest rate
•
Income tax rate
•
J0704-Business Plan
Opening balance sheet
•
•
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The date on opening balance sheet must
match the date of the business plan
The opening balance sheet shows all
assets, liabilities and equity as of the
date of the document
Example of balance sheet
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Pro forma Income Statements
•
•
•
Often the only one used by small
business
It shows a breakdown of sales and
expenses and what is left over-net profit
The expenses breakdown into two
categories :
–
–
•
Cost of sales or cost of revenue earned
Marketing and general and administrative expenses
Example of income statement
J0704-Business Plan
Breakeven analysis
Breakeven sales =
Operating exp.-(Cost of sales+Commissions+Freight)
1-(% of cost of sales + % of commissions + % of freight
J0704-Business Plan
Pro Forma Statement of Cash Flow
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•
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Is used to demonstrate the actual cash
position in any given month, to determine
whether your company has enough cash to
pay the bills
A monthly pro forma statement of cash flow for
operations is basically a forecast of the cash
receipts and cash disbursement, showing the
starting and ending balances of cash each
month
Example of Pro forma statement of cash flow
J0704-Business Plan
Pro forma balance sheet
•
•
Is an estimate of future
assets and liabilities
predicting equity, or net
worth, at a given point in
time
Example
J0704-Business Plan
Business Ratio
•
Current ratio :
–
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Quick ratio :
–
•
Total debts/total assets
Gross profit ratio :
–
•
Current assets – inventories
current liabilities
Debt ratio :
–
•
current assets/current liabilities
Gross profit/sales
Net profit ratio :
–
Net profit/sales
J0704-Business Plan
Business Ratio
•
EBIT-to-interest ratio :
–
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Collection days :
–
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Receivable
Annual sales/360
Total asset turnover :
–
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Earning Before Interest and Taxes
Interest expense
Sales/total assets
Inventory turnover :
–
Sales/inventory
J0704-Business Plan
Business Ratio
•
Inventory turnover days :
–
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ROA (Return on Assets) :
–
•
365/inventory turnover
Net profit/total assets
ROE (Return on Equity) :
–
Net profit/equity
J0704-Business Plan