Pro Forma Financial Statements :Pro Forma Financial Statements Frank Demmler


Sample Project:Pro forma financial statements Start up requirements Operations © Frank Demmler 2008 - all rights reserved 2


Structure :Structure Statements Profit and loss Balance sheet Cash flow Time horizon - 5 years Monthly for first year at least Quarterly for the next two years Annually for the last two years © Frank Demmler 2008 - all rights reserved 3


Start up requirements :Start up requirements Working capital Equipment Deposits Professional & other fees © Frank Demmler 2008 - all rights reserved 4


Content :Content Revenues Cost of sales Gross profit Operating expenses Balance sheet items © Frank Demmler 2008 - all rights reserved 5


Sales forecast :Sales forecast Categories of sales Units of what’s being sold by category Average price per unit within category How many customers can you attract? In what time buckets? © Frank Demmler 2008 - all rights reserved 6


Cost of sales & gross profit :Cost of sales & gross profit Gross profit should be 67-80% Or MORE! © Frank Demmler 2008 - all rights reserved 7


Personnel plan :Personnel plan When How many What will they cost Everything else © Frank Demmler 2008 - all rights reserved 8


Start Up :© Frank Demmler 2008 - all rights reserved 9 Start Up


6 Months :© Frank Demmler 2008 - all rights reserved 10 6 Months


12 Months :© Frank Demmler 2008 - all rights reserved 11 12 Months


24 Months :© Frank Demmler 2008 - all rights reserved 12 24 Months


Slide 13:© Frank Demmler 2008 - all rights reserved 13


Rules of thumb :Rules of thumb Personnel cost represent between 2/3 and 3/4 of all SGA expenses Operating income of greater than 30-40% in the out years (years 4 & 5) means you’re naive or you’ve been smoking something funny Industry averages - it the extremely rare company which can differ by orders of magnitude from industry average relationships with sales once the company is up an running © Frank Demmler 2008 - all rights reserved 14


Hypothetical high tech company :Hypothetical high tech company Gross profit: 60-80% Sales and marketing: 15-30% Engineering: 5-15% R&D: 5-15% General & administrative: 10-15% © Frank Demmler 2008 - all rights reserved 15


Process :Process In the beginning Build it up from a micro level What specific people will you need? When? What specific customers will you get? In the out years Be consistent with industry ratios In between How do you transition from one to another? © Frank Demmler 2008 - all rights reserved 16


Cash requirements :Cash requirements What does the first cut tell you about your cash needs? How reasonable do they seem in terms of the overall scope of the business? finding sources to provide it? What are some of the key things driving them? Are there alternatives to equipment purchases? Are there ways to delay certain spending? Are you really removing perceived risk in a cost-effective manner? © Frank Demmler 2008 - all rights reserved 17


Slide 18:18 © Frank Demmler 2008 - all rights reserved


Slide 19:19 © Frank Demmler 2008 - all rights reserved


Key phrases :Key phrases Burn rate OOC (time to Out Of Cash) TTC (Time To Close on cash) © Frank Demmler 2008 - all rights reserved 20


Ongoing :Ongoing Iterate Iterate Iterate © Frank Demmler 2008 - all rights reserved 21