I have to complete the Business Pro Forum. I attached the 3 documents that the professor provided us with. 1 is an example.2 is the instructions it's a pdf.3 is the excel spreadsheet we have to do the project one.
His additional notes for this project is:
- To get credit on the Pro Forma ALL FORMULAS IN CELLS MUST BE SHOWN - do not send pdf
- Visitors are "Assumed to be 500 for 1st month" & there is no need to estimate the number of monthly visitors for the rest of the Pro Forma
Ron G. Cheek, PhD Model for Creating a Pro Forma for New, Online Startup Companies If you look in Wikipedia or online, you will find many different definitions of “Pro Forma Statements.” For the Cheek Model our working definition will be “the expected financial performance of a company you are starting up.” The numbers “will not” include any interest, taxes, or depreciation. This is commonly known as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Our goal is to create realistic expectations of the revenues we expect to receive and the costs (both Variable & Fixed) at the start of our business. Once the company is operational we will have true figures to use in generating future Pro Formas. Remember we DO NOT have any historical information and ALL FIGURES will be used in our financial “Projections” of anticipated revenues and expenses. Our projected estimates of revenues and expenses are based on our personal experience in the industry and online research of the industry in which we will be operating. Our Goal is to create what we feel are validated, easy to support projections of future revenues and expenses. Forward to the 21st Century and entrepreneurs in existing companies and with new, start-up companies have “flipped” this entrepreneurial models. Entrepreneurs now create the business online, build an Audience, and create a proven demand for their products and services. Once their business is validated (proven), it can then be extended to a “bricks & mortar” operation. The old 20th Century model of “build it & they (customers) will come” has been replaced. The old model is replaced with Cheek Model. This business model is based on low startup costs and reduced risks and greater rewards as the business grows. Our Goal is to create an online company that walks us through the process from “Idea” to actual “Implementation.” In prior chapters we provided: • Find Your Passion • Identify Your Audience • Identify Your Niche • Create/Select the Right Product/Services • Build a Pro Forma that will be used for the Go/No Go Decision In this course you will build a new startup company online. It will be totally web-based and will assume you have limited to no technical knowledge on how to set up a webpage. This will be an actual company you will have the option to continue once the semester is over. As a final output you will develop a business plan that includes an Executive Summary, 12-month pro forma, and a Break Even analysis. The knowledge acquired as your development, implement, and measure the success of your company can be used as you move forward in your professional career. This cognitive knowledge can be used for the development of a new, start-up company or as valuable input for existing organizations. A recent survey in 2015 of Fortune 500 found one of the biggest concerns was adapting to technology & innovation issues in the 21st century. This course will provide each of you with a unique understanding of the challenges and opportunities available online for organizations. Running the Numbers Often you hear the term “running the numbers.” This is the true use of a pro forma – to run the numbers to see if the opportunity makes any sense. For early stage investigations entrepreneurs aren’t concerned with depreciation, taxes, or other accounting principles. The practical reality concerns the amount of revenues coming in and the costs (variable & fixed), or money going out. Many would consider this a simple “Cash Flow Statement.” We’ll stick to our terminology as a “Pro Forma for Entrepreneurs.” Pro Formas are “guess-estimates” based on the knowledge/experience of the entrepreneur and sound research. Remember there is no “historic” information available on past performance. These figures are based on the best estimates of the entrepreneur. Time Parameters: Should pro formas for new startup companies be for 12 months, 3 years, 5 years, or perhaps some other period of time? Frankly since these are “guess-estimates,” the further out in time they are stretched, the less reliable they become. Many investors refer to Pro Formas as SWAG (Scientific Wild Ass Guesses)! One year (12 months) for a new startup company is a lifetime. Purpose of Pro Forma: The pro forma can be used by different people for different things. For the potential investor/banker, it will tell them 1.) Minimum Cash required which includes the One Time Setup Costs + the losses until breakeven – this will provide the investor with an understanding of how much will be needed, if the entrepreneur ask for significantly more or less, the investor should be concerned and 2.) When will Breakeven occur (when the NOI becomes positive. For the entrepreneur the numbers in the pro forma are the essential “benchmarks” that let them know how they are doing and if changes must be made. Online Startup Organizations Using Affiliate Income In this Pro Forma we are using as an example ABC Women’s Active Wear. This is a website whose objective is to share information with young women 22-30 who are passionate about fitness and dress in Active Wear. The Entrepreneurs Online Affiliate Income Pro Forma is similar, but a little different than your typical pro forma. You can see the major sections that include: • Number of Visitors, • # of Sales, Sales Dollars, • Revenues, • Fixed Costs, • and finally Net Operating Income (NOI). Number of Visitors: “Everything” depends on the number of visitors to your website. While industry figures vary, normally approximately 2% of visitors to a website actually make purchases. For the development of your Pro Forma, we will “Assume” your site will have 1,000 visitors for the first month. Once you do the calculations for the 1st month, you can copy your calculations over for months 2-12. The only thing that will change will be the number of visitors to the site. # of Sales (Average 2% of Visitors): Using 1,000 visitors as your estimate for the first month of operation, approximately 5% or 50 visitors can be expected to make purchases. • Clothes (60%) – ABC Active Wear has two products, clothes and accessories. We will “assume” that 60% of the purchasers will buy clothes. In this example you will multiply B6 x 60% = 50 visitors will make purchases of clothes. (B7) • Accessories (40%) – We will “assume” 40% of the viewers making purchases will buy Accessories. In this example you will multiply B6 x 40% = 20 visitors will make purchases of accessories. (B8) Sales Dollars: These are the price of the products being purchased multiplied by the number of items purchased. • Clothes (Avg Sales Price $50) – we “assume” the average sales price will be $50 for clothes purchased. To obtain the total revenues from sales of clothes in Month 1, you will multiply the number of sales (B7) x $50 (average sales price) = $1,500 (B11) • Accessories (Avg Sales Price $15) – we “assume” the average sales price will be $15 for accessories purchased. To obtain the total revenues from sales of accessories in Month 1, you will multiply the number of sales (B8) x $15 (average sales price) = $300 (B12) • Total Revenues – the sum of sales of clothes + accessories $1,800 (B13) It is important to remember these are not the revenues we receive. These are the sales revenues for the vendors that are actually selling these products to our Audience. We will receive Affiliate Fees for each of these items that are purchased. Affiliate Income: These are the Affiliate fees we receive for sending our Audience to vendors websites. We only get paid when our Audience actually makes purchases. • Clothes (20% Affiliate Fee) – When our Audience makes a purchase, we receive an Affiliate fee. These fees will vary from vendor to vendor but we feel “on an average” we will receive a 20% Affiliate fee when one of our Audience makes a purchase from our vendor. To obtain this figure, we use the Sales Dollars from clothes (B11) and multiply them times the 20% Affiliate fee we receive for clothes. $1,500 (B11) x 20% = $300 (B16). • Accessories (15% Affiliate Fee) – “On an average” we anticipate a 15% Affiliate fee when our Audience makes a purchase with one of our vendors. To obtain this figure, we use the Sales Dollars from accessories (B12) and multiply them times the 15% Affiliate fee we will receive for accessories. $300(B12) x 15% = $45 (B17 • Total Revenues – The Total Revenues our site will receive for the first month are $345. This is the total of Revenues from clothes (B16) + those revenues from Accessories (B17). This would give us a total income for Month 1 of $345 (B18). Fixed Costs: The costs we “assume” for your startup company will be $2,015 per month. These costs will be incurred whether or not you have the revenues to cover them. The following is a breakdown of these Fixed Costs. • Salaries (B21) ($50 per hour x 40 hours) – We will “assume” you will spend 40 hours per month on your online company. This will be 10 hours per week. Your goal is to pay yourself $50 per hour for a total of $2,000 per month. • Hosting/Domain (B22) ($20) – There are several companies that will offer you Hosting and a Domain Name for $15 per month. • Total Fixed Costs – Remember you only have to come up with the losses if you want to pay yourself. In the first month you had revenue of $345. This covered your Hosting/Domain usage and provided you with pay of approximately $8 per hour for the 40 hours you worked! Net Operating Income (NOI) (B25): This is calculated by subtracting Net Operating Income (B25) from Total Revenues (B18). $345 - $2,015 = ($1,670) a loss for the month. When Investors or others look at an organization Pro Forma they expect to see Break Even will occur in six (6) months. This provides a cushion for the Entrepreneur, Banker, and Investors. Sheet1 NAME OF YOUR COMPANY (Based on Affiliate Fee Income) Pro Forma 12 Month & Years 1-3Break EvenSum ofIncreaseIncrease DescriptionMonthIncrease 15% each Months 7-1212 Months25%35% Month123456789101112Year 1Year 2Year 3 Visitors to Website Monthly500 Actual Sales (2%)10 Units Sold 1st Product (60% Sales)6 2nd Product