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Creating Pro Forma Documents
William L. DouganIrvin L. Young Professor of EntrepreneurshipProfessor of ManagementUW-Whitewater
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Six piecesRevenue ModelProfit and Loss (P&L)Cash Flow Balance SheetStartup CapitalNotes
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Order of ImportanceCash Flow Revenue ModelNotesStartup CapitalProfit and Loss (P&L)Balance Sheet
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Order of ConstructionRevenue ModelStartup CapitalCash Flow Profit and Loss (P&L)Balance SheetNotes
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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
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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
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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
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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
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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)
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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
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Cash Flow Checkbook/Cigar box modelSources/Dispersements and
Balance of Cash by MonthDocuments Inflows and OutflowsBig rule CASH BALANCE CAN’T
BE NEGATIVE
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Cash Items SOURCES:Cash Sales
◦ (Different than Sales on account)
Collections from ARLoan ProceedsEquity contributions
◦ Cash◦ Capital Goods
InterestGrantsPrizesPaid–in Taxes
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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
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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
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Profit and LossUses much of the same
information as Cash FlowMajor exceptions
◦Depreciation◦Inventory◦Receivables◦Payables
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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
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Balance SheetMetaphor of Balance
LA +E
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Balance Sheet
LA
+E
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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
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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
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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/