1. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Chapter 8 Building Your Pro Forma Financial Statements

2. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Reduced survival chance Underestimating time to secure financing Top-down versus bottom-up forecasting Lack of comparables Underestimating time to generate revenues Underestimating costs Not understanding the revenue drivers Common mistakes entrepreneurs make

3. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Financial Statements Income Statement Balance Sheet Statement Of Cash Flows

4. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Building Integrated Financial Statements BUILDING YOUR PRO FORMA FINANCIAL STATEMENTS Build-up Method Comparable Method Final Steps

5. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © BUILD-UP METHOD Revenue Projections COGS Operating Expenses Revenue Worksheet COGS Worksheet Operating Expense Worksheet Preliminary Income Statement

6. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © COMPARABLE METHOD Choose industry metrics Compare your projections to other companies and industry average Benchmark other companies in the industry

7. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © BUILDING INTEGRATED FINANCIAL STATEMENTS INTEGRATED FINANCIAL STATEMENTS Income Statement Monthly forecasts for years 1 and 2 Adjust monthly forecasts according to seasonality Annual forecasts for years 3-5 Balance Sheet Consider Accounts Receivable Show outflow and depreciate PP&E Consider Accounts Payable Statement of Cash Flows

8. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©  Focus on major infusions of cash describe the nature of your  accounts receivables and payables  Mention PP&E expenses PUTTING IT ALL TOGETHER 2-3 page explanation of your Financial Spreadsheets  Talk about revenue drivers  Talk about seasonality  Discuss the expense categories  Focus on major infusions of cash  Describe the nature of your  Accounts receivables and payables  Mention PP&E expenses  Talk about major asset categories, and any Liabilities that aren’t clear from the previous discussion Discuss the Income Statement Discuss the Cash Flow Statement Discuss the Balance Sheet