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Creating Pro Forma Documents
William L. DouganIrvin L. Young Professor of EntrepreneurshipProfessor of ManagementUW-Whitewater
Six piecesRevenue ModelProfit and Loss (P&L)Cash Flow Balance SheetStartup CapitalNotes
Order of ImportanceCash Flow Revenue ModelNotesStartup CapitalProfit and Loss (P&L)Balance Sheet
Order of ConstructionRevenue ModelStartup CapitalCash Flow Profit and Loss (P&L)Balance SheetNotes
Business Plan SoftwarePlaced 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/BizFil
es/TemplatesForms/FastTrac_MyFinancialPlanV6.xls
Revenue ModelYour story about how you will sell
your products/servicesBased on monthly quantitiesDepends on Units or Dollars or
both◦Boat Manufacturer Units◦Retail store Units are a problem◦Multiple Products Add effects of each
productAdditive Linear Model
Additive Linear ModelMonth 1 2 3 4 5 6 7 8 9 10 11 12
Prod 1 Units
0 0 10 15 21 25 35 45 60 90 100 150
Price 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 2 3 4 5 6 7 8 9 10 11 12Prod 2 Units
0 0 50 75 90 100 120 140 180 220 300 450
Price 0 0 100 100 100 100 100 90 90 90 90 80
TOTAL 0 0 5000 7500 9000 10000 12000 12600 16200 19800 27000 36000
Month 1 2 3 4 5 6 7 8 9 10 11 12TOTAL
0 0 15000 22500 30000 35000 47000 57600 106200 154800 177000 261000
Revenue Model FactorsDiscrete, linear decomposition of a multiple, interacting components◦Separate effects of multiple products/services
◦Startup delay◦Production/Sales Ramp-up Diffusion Learning
◦Seasonality
Sales on AccountNot 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/
promotionsReserve for
Wages/Salaries◦ Banking
Line of Credit Account Initiation Loan Initiation
Cash Flow Checkbook/Cigar box modelSources/Dispersements and
Balance of Cash by MonthDocuments Inflows and OutflowsBig rule CASH BALANCE CAN’T
BE NEGATIVE
Cash Items SOURCES:Cash Sales
◦ (Different than Sales on account)
Collections from ARLoan ProceedsEquity contributions
◦ Cash◦ Capital Goods
InterestGrantsPrizesPaid–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
General Form Cash Flow
Opening Cash Balance Month 1
Opening Cash Balance Month 2
+ Cash In from Sources
- Cash Out for Dispersements
= Ending Cash Balance
Which Becomes (for next month)
+ Cash In from Sources
- Cash Out for Dispersements
= Ending Cash Balance
Which Becomes (for next month
Profit and LossUses much of the same
information as Cash FlowMajor exceptions
◦Depreciation◦Inventory◦Receivables◦Payables
Profit and LossNet 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 SheetMetaphor of Balance
LA +E
Balance Sheet
LA
+E
Balance Sheet IssuesBalance 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
NotesThese provide the justification for
values on the other sheetsAct 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
ResourcesReal Estate Cost
◦www.wisconsinhomes.com◦http://www2.bizjournals.com/bizspace/milwauke
e/
Salaries www.salary.comUtilities call utility companiesMortgage Calculator All over internetInsurance call agentIndustry RMA Statement Studies + Value
Line + Associations Unlimited (for Industry info)+ Dunn and Bradstreet
General http://library.uww.edu/