Pro-forma Financials [SMB Consulting Best Practices]

Hellooooo – I am Harry Brelsford, the author of the SMB Consulting Best Practices book! Each day, I hold a virtual book reading by posting up a passage….



Harry Brelsford, CEO at smb nation

Microsoft Small Business Specialist SBSC, MBA, MCSE, MCT, MCP, CNE, CLSE, CNP

PS – did u know I host an annual conference in Seattle each october for SBSers and SMB consultants? This year we help launch SBS 2008 and Essential Business Server (EBS) between October 4-6!

Pro forma financial information

In a business plan, the financial analysis section typically results in pro forma financial information. A couple of thoughts for you to consider:

·        Zero-based cost budgeting — Believe it or not, as a budding SMB consultant, you can more easily estimate your costs than your revenues. With some legwork and elbow grease, you can surf the Internet or call around and get estimates for nearly all the costs you’ll incur. For example, suppose you’re considering leasing a small office for your SMB consulting practice. By calling a few real estate leasing agents, you could easily determine how much per square foot per month you will be paying. Other costs, such as equipment outlays and fees for services, can be estimated in a similar manner.

·        Break-even analysis — If you are just starting your SMB consulting practice without a track record, it has been my experience that the only type of valid pro forma budget is one based on break-even analysis. Here you are looking at how much business you have to bring in to make it. This should include the salary you will pay yourself. The only exceptions for using other budgeting techniques, such as percentage of growth, are 1) when you have signed long-term consulting contracts as part of your SMB consulting practice launch, and 2) when, after months or years of hard work, you have developed a business track record.

·        Extrapolation as budgeting — This is the easiest form of budget­ing, one that most anyone can perform. That’s the good news. The bad news is that you need some historical data to start with. That’s because an extrapolated budget is typically built by taking an existing budget (or historical financial accounting statements), then simply adding a growth rate, say 5 percent, and badda boom badda bing! You have next year’s budget. It’s that simple. Of course, the simplic­ity has a way of masking the inherit inaccuracies with the method.


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