Financial Pro Forma

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Financial Pro Forma

• Session 20-23

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Show me the money
It is better to have a hen tomorrow than an egg
today Thomas Fuller
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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

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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

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Financial Pro Forma

• Start-up Costs
• Leasehold improvement
• Advertising
• Insurance
• Accounting and legal fees
• Equipment
• Hiring expenses
• Fixtures and furniture
• Training expenses

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Financial Pro Forma

• Start-up Costs
• Freight and installation
• Grand opening
• Sales taxes
• Working capital requirement

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Financial Pro Forma

• Accounting method and bookkeeping system
• Accounting method
• The cash method
• The accrual method
• Bookkeeping system
• Single entry
• Double entry

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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

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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

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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

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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

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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

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Breakeven analysis

• Breakeven sales
• Operating exp.-(Cost of salesCommissionsFreight)
  
• 1-( of cost of sales of commissions of
  freight

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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

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Pro forma balance sheet

• Is an estimate of future assets and liabilities
  predicting equity, or net worth, at a given point
  in time
• Example

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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

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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

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Business Ratio

• Inventory turnover days
• 365/inventory turnover
• ROA (Return on Assets)
• Net profit/total assets
• ROE (Return on Equity)
• Net profit/equity