How important is it to have a pro forma statement as a part of your business plan?

       My business idea is, in Jamaica, to negotiate recording contracts for my young protégés and others, be a Booking Agent and conduct classes in general deportment.

       When I first got the idea for starting my own company, I never gave much thought about financing it. I just figured that when the time was right I would just use some of my little savings, the ‘beggings’ from my family and friends and get to work.

       I am currently enrolled in the Master’s Degree Program in Entertainment Business at Full Sail University trying to learn as much as is taught about the entertainment business. The reality, of what it would entail to have a successful start-up of my company, knocked me over the first day of the class in Entertainment Business Finance. What I have learned so far is proving to be a real eye opener. I am learning, and seeing clearly, that having the financial capital is not enough to run my company, I will also have to show

how I am going to make my finances work for, and operate, my business. In other words, I need a pro forma statement; I will have to show my potential investors and the bank (for loan requirement purposes) how I intended to manage my business. A pro forma statement is “a projected or estimated financial statement that attempts to present a reasonably accurate idea of what a firm’s financial situation would be if the present trends continue or certain assumptions hold true. Pro forma statements are used routinely in preparing ‘what if’ scenarios, formulating business plans, estimating cash requirements, or when submitting financing proposals.”

       My original business plan was to operate my company from the comfort of my home with me being the sole employee, so as far as I was concerned, the only real assets that were needed were my MacBook Pro, my smartphone and an automobile. I never gave much thought to any expansion that would eventually take place even though it is my intention to make my business a success. This is really ‘business carelessness and stupidity’, not naivety because if I have the ‘great’ intention to start a business then the onus is upon me to do the necessary research. Luckily, I still have time to do so.

       My pro forma statement, a necessary part of the business plan for my company, should reflect and project my start-up costs, which would be my Beginning wages, rent, utilities and any licenses or permits that I may require to operate my company (homerberkowitz, 2012). Seeing that in the initial stages I’ll be working from home, it means that whatever I currently pay for mortgage and utilities are a part of my start-up costs. I never even thought of that. I did not even factor in paying myself a salary. I also have to note the current value of my assets, namely my MacBook Pro, my smartphone and my car, and the furniture in my home office. From time to time I may have to visit my clients away from my home so I will also have to estimate transportation costs. I will also have to list any personal funds, as well as any investments, used in the start-up of my company. The most important thing that I have learned in the start-up for a business is the necessity of having insurance, whether it is for auto insurance or general insurance. For my clients’ sake, and mine, this is a must for the business and for whatever income I hope to generate. For example, a client may be visiting my home office to conclude a contract negotiation and my pit bull Skippy decides to break his leash and bites my client who then decides to sue me, I’ll be in deep **** if I don’t have the proper insurance coverage. All my little savings would be wiped out along with my company, not to mention the fact that orange is not my favorite color. Talking about color, if I had to repaint the room that I am using as my home office, the costs of the paint and the labor to do the painting are also a part of my start-up costs. This is very interesting and informative learning.  My business idea would have died in the germination stage without me having this knowledge. Fast forward a year into the business with things not going the way as planned and me sitting in front of the fresh-faced loans officer in the bank stuttering and looking stupid when he asked questions such as, “Ma’am, what were your projections for your company? What were your start-up costs?” I would be dying of embarrassment.

        In conclusion, knowing how to develop your pro forma statement is very important for the start-up of your business, it is a necessary document that you will have on hand that you can keep referring to when, and if any, hiccups arises. It is also a vital part of your planning process and will provide important information for the future. You will be happy that you took the time to do so.

Resource materials taken from the following sources: http://www.businessdictionary.com/definition/pro-forma-statement.html,

homerberkowitz. (Performer) (n.d.). EBF Podcast - Pro Forma Overview. [Audio podcast]. Retrieved from http://www.viddler.com/v/96804fb4, Entertainment Business Finance Course lecture notes and references.