For Laughs - Check out your Pro Forma

The dogs have me up early this morning so I’ve been working on my 2007 business models. For kicks, I pulled up the pro forma I created for my business back when I was still in business school. (For those who don’t know, a pro forma is a forward-looking financial statement that takes into account where one thinks the financial future of the business will go. Pro forma’s are helpful tools because once created they can be tweaked to determine how much various factors, such as a rise in raw material costs, will impact the bottom line of the business based on certain growth targets. They're also ideal on days like today when I'm trying to forcast out my conservative, ideal, and dream growth rates as it gives me a sense of how the business will perform in each of those scenarios. For information on how to build a pro forma ask any finance geek you know or let me know and I can point you in the direction of some finance geeks.)

Let’s just say that the proforma I had built for 2006 wasn’t even close - not by a long shot! In all honesty it was kind of fun to take a look at and see how naive I really was (which frightens me because I think I’m still naive). While I still believe in the benefit of building pro forma statements, it’s not easy to build one when you don’t have any data about prior sales, marketing costs, etc. Some would argue that you should take a look at a financial statement from one of the public companies in your industry and base yours off of theirs but let’s be realistic, they have a $gabillion budget so I don’t see that as being very helpful.

So what changes am I currently making for the 2007 pro forma?

• Now that I have sales figures I can take a rough guess at how much I want/expect business to grow and build that in. This is still pretty much simply a guessing game since I don't have a ton of history from which to get these growth figures but I am able to create three pro formas that take into account the above mentioned growth scenarios.
• My marketing budget was horribly - woefully - out of wack. The sad thing is, I was a marketing major at business school known for its marketing program - I should have known better. Now I understand why marketing managers everywhere have to fight so hard for a reasonable budget. Marketing really was and appears will continue to be one of my biggest expeses.
• I do now have a better sense of my other monthly expenses so this does make it easier to forcast for next year as opposed to estimating in my 2006 pro forma.

Those are the big things. There's still a lot of unknown going forward but that's the way of a new business, isn't it?