Business Environment, Innovation, And Entrepreneurship MBA 5

Business Environment Innovation Entrepreneurshipmba 515 21393module

Business Environment, Innovation & Entrepreneurship MBA - Module 11: Financial Pro-Forma Statement Bruce Crochetiere Module 11: Financial Pro-Forma Statement Financial Pro-Forma Statement Short Paper 2 Building your Business Plan Short Paper 2: Financial Pro-Forma Statement Shark Tank Product Sales What are the Product Sales in your business? Professional Services Will your company have Services revenue? Other Revenue Are there any other types of revenue coming in? Total Revenue Add all Revenue Streams Cost of Goods Sold What are the costs when you purchase products or if you manufacture? Gross Profit What will be your working capital for running your business? Salaries What are all the salaries in your company? Employee Overhead Insurance, Workman’s Comp, etc. (Multiply your Salaries by 33%) Rent Research what rent rate are where you want to operate? Other Expenses All other expenses, Lawyer, Interest, Sales Expense, etc. Total Overhead Add Salaries, Employee Overhead, Rent, and Other Expenses. Operating EBITDA This is your true working capital Capital Expenditures Add what you need to start your business Computers, Trucks, etc. Cash Needed This is your shortfall from what you spend and what you make. Financial Pro-Forma Statement Short Paper 2: Financial Pro-Forma Statement Shark Tank First Year Financials Building your Business Plan – Final Paper Executive summary Company description – Milestone 1 Market analysis Organization structure – Milestone 2 Description of the service or product line Marketing strategy – Milestone 3 Financial projections – Short Paper 2 Funding your business Summary Appendix that includes relevant articles, resumes, or permits. Filling out an application for establishing a NH Corporation Short Paper 2 The idea is to build a Financial Pro-Forma Statement to find out how much cash you will need to start your company. Opening Paragraph or 2 describing what you are going to present Year12345 Product Sales Professional Services Other Revenue Total Revenue Cost of Goods Sold Gross Profit Salaries Overhead Rent Other Expenses Total Overhead Operating EBITDA Capital Expenditures Cash Needed Closing summary discussing your findings and what you would require for investment. Operating EBITDA (-175,000), (-218,750), 976,563, 1,220,703, 1,525,879 Capital Expenditures (-500,000), (-250,000), (-100,000), (-100,000), (-100,000) Cash Needed (-675,000), (-468,750), 876,563, 1,120,703, 1,425,879

Paper For Above instruction

The creation of a comprehensive financial pro-forma statement is an essential step in establishing and planning a new business. This financial document forecasts future revenues, expenses, and cash flows, providing entrepreneurs with critical insights into the financial requirements and sustainability of their venture. In this paper, I will develop a detailed pro-forma financial statement for a hypothetical startup, covering five years of projected financial data, and analyze the implications of these projections for potential investors and stakeholders.

In building this pro-forma, I will begin by estimating product sales, professional services, and other revenue streams over the five-year period. For example, product sales are expected to start at $200,000 in Year 1, growing by 20% annually due to increasing market penetration and brand awareness. Professional services revenue, such as consulting or support services, are projected at $50,000 initially, increasing by 15% per year. Other revenue streams, including licensing or licensing fees, are anticipated to add a supplementary $10,000 in Year 1, with growth aligned to overall business expansion.

Summing these, the total revenue would be $260,000 in Year 1, escalating to over $600,000 by Year 5. Next, I will estimate the cost of goods sold (COGS), which includes raw materials, manufacturing expenses, or direct service costs. Assuming a COGS of 40% of total revenue, the gross profit begins at approximately $156,000 in Year 1 and increases proportionally as revenue grows. Gross profit margins are vital indicators of operational efficiency and pricing strategy; thus, careful planning ensures sustainability.

Operational expenses encompass salaries, employee overhead, rent, and other miscellaneous costs. Salaries are estimated based on the number of employees and industry standards, with a projected initial expense of $60,000, increasing by 5% annually to accommodate staffing growth. Employee overhead includes insurance, workers’ compensation, and other benefits, calculated at 33% of salaries, totaling approximately $19,800 initially. Rent costs will depend on the chosen location; for example, an initial monthly rent of $2,000, totaling $24,000 annually, is assumed for this analysis.

Additional expenses such as legal fees, interest on loans, sales and marketing costs, and utilities are integrated into the total overhead. These are projected to start at around $50,000 in Year 1, increasing gradually as the business expands. Summing salaries, overhead, rent, and other expenses results in total overhead costs, which are then subtracted from gross profit to determine operating EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). EBITDA offers a clear picture of operational performance excluding capital structure and non-operational expenses.

Capital expenditures include investments needed for startup infrastructure: computers, trucks, manufacturing equipment, or office furniture. For example, initial capital investments may total $150,000, covering essential assets. Over subsequent years, capital expenditures decrease as foundational assets are acquired, possibly totaling $100,000 annually in later years for upgrades or replacement. These expenditures are critical as they affect cash flow and the company’s future capacity for growth.

The cash needed is then calculated by subtracting projected cash inflows from outflows, revealing the shortfall or surplus in each year. For instance, early years often require significant capital injections, as in Year 1, where a shortfall of approximately $675,000 may be necessary to fund operations and capital investments. As revenue increases over time, this shortfall diminishes, and the business becomes cash-flow positive by Year 3 or 4. The analysis highlights the importance of securing initial investment or financing to bridge early cash flow gaps.

In conclusion, the financial pro-forma provides essential insights into the financing needs, growth potential, and operational efficiency of the prospective business. It demonstrates that substantial initial capital is required, especially in the first two years, emphasizing the importance of attracting investment. By systematically projecting revenues, expenses, and capital needs, entrepreneurs can craft realistic financing strategies and operational plans that align with their growth objectives. This exercise underscores the importance of careful financial planning and the critical role of pro-forma statements in entrepreneurial success.

References

• Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management (14th ed.). Cengage Learning.
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance (12th ed.). McGraw-Hill Education.
• Higgins, R. C. (2020). Financial Management: Theory & Practice (12th ed.). McGraw-Hill Education.
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