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What Should Be Included in a Business Plan Financial Pro Forma?

Example Investor Pitch Deck Financial Model Summary-795763-edited.png

What items would be included in a comprehensive financial pro forma summarizing a business plan? (as published in Forbes, Apple News, and the Huffington Post and as originally published on Quora)

A rock-solid business plan spreadsheet pro forma that is comprehensive enough and easy enough to use is a very complex and time-consuming undertaking and includes necessary skill sets that cut across the following to bring it all together: financial modeling, accounting, finance, venture capital, lending, and loads of actual startup leadership experience.

The ideal business plan pro forma template should include the following (I’ve included links so you can see example inputs and outputs, along with video and screen shots):

  • Assumptions that easily be input and changed that ripple throughout the entire pro forma model
  • Sales forecast inputs that easily allow you to model sales driven by sales channels, website conversion ratios, direct sales, upsells, and cross-sells
  • Sales forecast inputs that easily allow you to model one-time revenue and/or recurring revenue with numerous potential assumptions for how and when to bill and collect from the customer, all of the appropriate impacts of cash flow and deferred revenue liability
  • A detailed Sales report that shows all key sales metrics, customer lifetime value metrics, revenue metrics, etc. for each of your products and services so you can quickly analyze each offering
  • Direct employee assumptions that are automatically driven by the sales forecast
  • Indirect employee assumptions that are easy to input and change and that are properly categorized on the Income Statement by type of indirect expense
  • A detailed staffing/employee report that shows the impact of all employees, included all of the employee-related expenses of taxes, insurance, office-related expenses, recruiting expenses, training expenses, travel expenses, etc.
  • Separate inputs for both tangible and intangible asset investments that are required and the appropriate treatment of the resulting depreciation and amortization
  • The ability to add numerous tranches of debt with all of the appropriate impacts to the financial statements
  • The ability to easily add numerous tranches of equity from seed capital to convertible debt to Series A to Series B with all of the appropriate impacts to the financial statements
  • An integrated Ownership and Capitalization Table that calculates the impact of all investments and that is integrated into the Investor Return report
  • A detailed Investor Return Summary by shareholder class that shows an estimated valuation of the business over time, as well as the value for each class of shareholder, as well as the proceeds waterfall, as well as the IRR and investor return multiple
  • A Breakeven Analysis that shows the breakeven units, revenue, and timing for all three measures of Net Income, EBITDA, and Operating Cash Flow breakeven
  • A completely separate alternate scenario analysis that allows you to quickly pressure test the sensitivity to various assumptions and do a quick side-by-side comparison
  • A detailed set of financial statements by month, quarter, and year for the Income Statement, Balance Sheet, and Cash Flow Statement that conform with the proper accounting rules for your country (GAAP or IFRS)
  • Key Operational and Financial Metrics of revenue, earnings, cash flow, liquidity, and working capital by customer, employee, channel, etc.
  • A summarized five-year pro forma with Income Statement, Balance Sheet, and Cash Flow Statement all on one page that is designed to copy to paste into a PPT pitch deck
  • The ability to allow potential investors to dig through the details of your model, while not really giving them access to the model (as in a read-only user in a locked-down web app)
  • And don't forget the 20 years and thousands of real startups that it will take to get it right and get all of the bugs and kinks worked out

If all of the above sounds daunting, you’re right it is. And believe me it is not worth it for any entrepreneur to try to build it themselves – you have better things to do. And it’s really not worth it to pay some financial wizard $5k - $25k to try to build it for you, because there will be bugs (despite everyone’s best intentions), there will be lots of “translation” errors with them trying to figure out what you mean, it will be very cumbersome and hard to change and iterate, and the cost and time to try to get it built is literally prohibitive.

Startups should only invest time and large amounts of money building capability that is both strategic and recurring. Since a startup financial model pro forma is a one-time effort to help you refine your plan and get your funding prior to switching to accounting software once your startup is underway, my advice is to use the Startup Financial Model software that I built exactly for this purpose. And it did take 20 years and all of the skill sets listed above, etc.

Alternatively, if you are a startup advisor and you are looking to advise startups in this area, I’d suggest that you partner with the Startup Financial Model so that your advice is a much higher value-added operational, financial, and strategic advice and not just spending time as a spreadsheet jockey.

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