J0704-Business Plan Financial Pro Forma Session 20-23

J0704-Business Plan It is better to have a hen tomorrow than an egg today – Thomas Fuller Show me the money

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

J0704-Business Plan 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 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 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

J0704-Business Plan 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 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 : –current assets/current liabilities Quick ratio : –Current assets – inventories current liabilities Debt ratio : –Total debts/total assets Gross profit ratio : –Gross profit/sales Net profit ratio : –Net profit/sales

J0704-Business Plan Business Ratio EBIT-to-interest ratio : –Earning Before Interest and Taxes Interest expense Collection days : –Receivable Annual sales/360 Total asset turnover : –Sales/total assets Inventory turnover : –Sales/inventory

J0704-Business Plan Business Ratio Inventory turnover days : –365/inventory turnover ROA (Return on Assets) : –Net profit/total assets ROE (Return on Equity) : –Net profit/equity