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Creating Pro Forma Documents

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

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Creating Pro Forma Documents

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  1. Creating Pro Forma Documents William L. Dougan Irvin L. Young Professor of Entrepreneurship Professor of Management UW-Whitewater

  2. Six pieces • Revenue Model • Profit and Loss (P&L) • Cash Flow • Balance Sheet • Startup Capital • Notes

  3. Order of Importance • Cash Flow • Revenue Model • Notes • Startup Capital • Profit and Loss (P&L) • Balance Sheet

  4. Order of Construction • Revenue Model • Startup Capital • Cash Flow • Profit and Loss (P&L) • Balance Sheet • Notes

  5. 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/TemplatesForms/FastTrac_MyFinancialPlanV6.xls

  6. 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

  7. Additive Linear Model

  8. 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

  9. 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)

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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 General Form Cash Flow

  15. Profit and Loss • Uses much of the same information as Cash Flow • Major exceptions • Depreciation • Inventory • Receivables • Payables

  16. 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

  17. Balance Sheet • Metaphor of Balance A L + E

  18. Balance Sheet A L + E

  19. 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

  20. 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

  21. 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/

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