Financial Statement

1. Building
Pro Forma Financial
Statement
Dr. Wisnu Sakti Dewobroto
Dr. Wisnu Dewobroto

2. Business Model

3. Business Model & Design thinking

4. Common Mistakes

5. 1. Not Understand the revenue drivers
• Entrepreneurs are
overly optimistic in
their projection.
• Avoid the
“conservative”
adjective; it strikes
most sophisticated
investor as naïve.

6. 2. Underestimating Cost
• Revenue growing in a “Hockey stick” fashion, while cost slowly
progress upward
• The assumes that nearly impossible
• Often entrepreneurs underestimate how much infrastructure they
need in the way of employees and physical assets to achieve that
level of sales
• Entrepreneurs also underestimate the cost of marketing expenditures
to acquire and retain customers. Poor projections lead to cash
crunches and ultimately to failure.

7. 3. Underestimating time to generate
revenues
• A Business will incur
costs for man months
before it can generate
revenues
• Often projection show
the business at full
capacity within the first
year, that is rarely
realistic

8. 4. Lack of comparable
• Many entrepreneurs projections have ratios that far exceed industry
standards and selected benchmark companies.

9. 5. Top down versus bottom up forecasting
• Entrepreneurs usually
claim that their revenue
represent certain number
(3%, 5% etc) without
considering the reason /
strategy to reach that
number.

10. 6. Underestimating time to secure financing
• Entrepreneurs assume
financing will close quickly
• In reality it often takes time
to close a round of financing.
• Entrepreneurs often too
optimistic

11. Financial Statement Overview
• Income Statement
• Cash Flow
• Balance Sheet

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17. Financial Pyramid

18. Building pro forma Financial Statement (1)
• Build up Method
1. Identify all your sources of revenues
2. Determine your revenues for a typical day
3. Understand you revenue drivers
a. How many customers you will serve
b. How much product they will buy
c. How much they will pay for each product
d. How often they will buy
4. Validate driver assumptions
a. Primary research (talk to customers, attend tradeshow etc.)
b. Secondary research (industry reports, company reports etc.)
5. Recombine. Multiply the typical day by the number of days in a year
6. Determine COGS for a typical day
7. Recombine. Multiply COGS by number of days in a year
8. Determine operating expenses by most appropriate time frame
9. Refine operating costs
10. Crate preliminary income statement

19. Building pro forma Financial Statement (2)
• Comparable method
11. Compare revenue projections to industry metrics
12. Run scenario analysis
13. Compare common-sized cost percentages to industry averages
• Building integrated Financial statements
14. Derive monthly income statements for two years, yearly statements for
year 3 -5
15. Create balance sheet (yearly for year 1 -5)
16. Create cash-flow statement (monthly for years 1 and 2 yearly for years 3 –
5)
• Final steps
17. Write a two- to three-page description of financial statements

20. Revenue Projection
• Visualizing your
projection
• Instead per
month or per
year, break it
down into a
typical day

21. Cost of Good Sold
• After revenue projection,
next consideration is cost.
• There are two category of
costs : Cost Of Good Sold
and Operating Expenses

22. Operating Expenses
• Operating expenses are the costs of keeping your business running.
Think of these as the things you're going to have to pay each
month. Your list of operating expenses may include:
• salaries (yours and staff salaries)
• rent or mortgage payments
• telecommunications
• utilities
• raw materials
• storage
• distribution
• promotion
• loan payments
• office supplies
• maintenance

23. Income Statement
• The Income Statement is one of the three financial statements
that you need to include in the Financial Plan section of the
business plan.
• The Income Statement shows your Revenues, Expenses, and
Profit for a particular period. It's a snapshot of your business
that shows whether or not your business is profitable at that
point in time; Revenue - Expenses = Profit/Loss.
• While established businesses normally produce an Income
Statement each fiscal quarter, or even once each fiscal year, for
the purposes of the business plan, an Income Statement should
be generated more frequently - monthly for the first year.

24. Income Statement per Year

25. The Cash Flow Projection
• The Cash Flow Projection shows how cash is expected to flow in and out of
your business. For you, it's an important tool for cash flow management,
letting you know when your expenditures are too high or when you might
want to arrange short term investments to deal with a cash flow surplus. As
part of your business plan, a Cash Flow Projection will give you a much
better idea of how much capital investment your business idea needs.
• For a bank loans officer, the Cash Flow Projection offers evidence that your
business is a good credit risk and that there will be enough cash on hand to
make your business a good candidate for a line of credit or short term loan.
• Do not confuse a Cash Flow Projection with a Cash Flow Statement. The
Cash Flow Statement shows how cash has flowed in and out of your
business. In other words, it describes the cash flow that has occurred in the
past. The Cash Flow Projection shows the cash that is anticipated to be
generated or expended over a chosen period of time in the future.
• While both types of Cash Flow reports are important business decision-
making tools for businesses, we're only concerned with the Cash Flow
Projection in the business plan. You will want to show Cash Flow
Projections for each month over a one year period as part of the Financial
Plan portion of your business plan.

26. Cash Flow Projection
• There are three parts to the Cash Flow Projection. The first part
details your Cash Revenues. Enter your estimated sales figures for
each month. Remember that these are Cash Revenues; you will only
enter the sales that are collectible in cash during the specific month
you are dealing with.
• The second part is your Cash Disbursements. Take the various
expense categories from your ledger and list the cash expenditures
you actually expect to pay that month for each month.
• The third part of the Cash Flow Projection is the Reconciliation of
Cash Revenues to Cash Disbursements. As the word "reconciliation"
suggests, this section starts with an opening balance which is the
carryover from the previous month's operations. The current month's
Revenues are added to this balance; the current month's
Disbursements are subtracted, and the adjusted cash flow balance is
carried over to the next month.

27. Example of Cash Flow

28. Balance Sheet
• The Balance Sheet presents a picture of your business' net worth at a
particular point in time. It summarizes all the financial data about your
business, breaking that data into 3 categories; assets, liabilities, and equity.
• Some definitions first:
• Assets are tangible objects of financial value that are owned by the company.
• A liability is a debt owed to a creditor of the company.
• Equity is the net difference when the total liabilities are subtracted from the total
assets.
• All accounts in your General Ledger are categorized as an asset, a liability or
equity. The relationship between them is expressed in this equation: Assets
= Liabilities + Equity.
• For the purposes of your business plan, you'll be creating a pro forma
Balance Sheet intended to summarize the information in the Income
Statement and Cash Flow Projections. Normally a business prepares a
Balance Sheet once a year.

29. Brief Analysis
• Once you have your Balance Sheet completed, you're ready to
write a brief analysis of each of the three financial statements.
When you're writing these analysis paragraphs, you want to keep
them short and cover the highlights, rather than writing an in-
depth analysis.