1. Understanding Your Financial Requirements

2. Conducting a Feasibility Study: Part 2
Evaluate financial feasibility of concept
Estimate one-time start-up expenditures
Estimate expected monthly operating expenses
Develop short-term financial projections
Determine your breakeven point
Forecast your
cash flow
Pro forma
income statement
balance sheet

3. To be good at your business, you have to know your numbers ----- COLD.
Harold Gineen
Former Chair of IT&T

4. At a minimum, a good set of financial projections should include:
A pro forma income statement
A balance sheet
A cash flow statement
A detailed explanation of the assumptions that underlie the projections

5. Start With a Sources and Applications of Funds Table
Requires you to state what you intend to spend your money on for start-up expenses (i.e. applications of funds) and
where you will get the money (i.e. sources of funds)

6. Sources of Funds Equity (what the business owes the owner)
Cash
Equipment
Material
Inventory
Loans (what the business owes others)
Short-term
Long-term
Line of credit
Near Equity
Family money
Angel investments

7. Application of Funds General Start-up Costs Leasehold Improvements
Organizational costs – legal, accounting, business registration, franchise fees, etc.
Prepaid expenses – insurance, licenses and permits, security deposits, utility deposits, first and last month’s rent, opening advertising and promotion.
Inventory and office supplies
Leasehold Improvements
Electrical, plumbing, signage, washrooms, carpeting, mirrors, air conditioning, wall paper and painting, etc.
Equipment Costs
Tables, desks, chairs, filing cabinets, production machinery, storage cabinets, cell phone, computers, fax machine, copier, automobile, etc.
Cash Reserve
Cash on hand to cover cash flow shortfall until breakeven.

8. The purpose of these financial projections is to enable you to answer the following questions:
How much money will your business need to maintain a positive cash flow?
When exactly will you need the money?
What kind of money (debt or equity or both) should it be?

9. Sample Pro Forma Income Statement
TOUGH GUYS SPORTING GOODS
PRO FORMA INCOME STATEMENT
For the year ending [date]
Net sales $526,000 (A)
Less: Cost of goods sold:
Beginning inventory $167,000
Plus: Net purchases 361,000
Goods available for sale $528,000
Less: Ending inventory ,000
Cost of goods sold ,000 (B)
Gross margin $179,000 (C)
Operating expenses ,000 (D)
Net Profit (Loss) Before Income Tax $ 10,000 (E)

10. TOUGH GUYS SPORTING GOODS PRO FORMA INCOME STATEMENT
Completed Pro Forma Income Statement
TOUGH GUYS SPORTING GOODS
PRO FORMA INCOME STATEMENT
For the Year (date)
1. Gross Sales $526,000
2. Less: Cash Discounts
A. NET SALES $526,000
Cost of Goods Sold:
3. Beginning Inventory $167,000
4. Plus: Net Purchases 361,000
5. Total Available for Sale $528,000
6. Less: Ending Inventory 181,000
B. COST OF GOODS SOLD $347,000
C. GROSS MARGIN $179,000
Less: Variable Expenses
7. Owner’s Salary 40,000
8. Employees’ Wages and Salaries 41,000
9. Supplies and Postage 0
10. Advertising and Promotion 10,000
11. Delivery Expense 3,700
12. Bad Debt Expense 0
13. Travel 0
14. Legal and Accounting Fees 2,600
15. Vehicle Expense 0
16. Miscellaneous Expenses ,700
Continued

11. Completed Pro Forma Income Statement (Continued)
TOUGH GUYS SPORTING GOODS
PRO FORMA INCOME STATEMENT
For the Year (date) - Continued
D. TOTAL VARIABLE EXPENSES $122,000
Less: Fixed Expenses
17. Rent 15,300
18. Repairs and Maintenance 4,200
19. Utilities (Heat, Light, Power) 4,800
20. Telephone 1,000
21. Taxes and Licenses 1,000
22. Depreciation 5,300
23. Interest 10,000
24. Insurance 2,600
25. Other Fixed Expenses ,600
E. TOTAL FIXED EXPENSES $ 46,800
F. TOTAL OPERATING EXPENSES $169,000
G. NET OPERATING PROFIT (LOSS) $ 10,000

12. Sample Cash Flow Forecast
Pro Forma Cash Flow Forecast for Tough Guys Sporting Goods
12-Month Cash Flow Projections
Minimum Cash
Balance Required =
Year 1
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total
Cash Flow from Operations
(during month)
1. Cash Sales 12,000 18,000 22,200 28,800 30,000 36,600 39,000 30,000 24,000 24,000 21,000 30, ,600
2. Payments for Credit Sales 0 8,000 12,000 14,800 19,200 20,000 24,400 26,000 20,000 16,000 16,000 14, ,400
3. Investment Income
4. Other Cash Income
A. TOTAL CASH ON HAND $12,000 $26,000 $34,200 $43,600 $49,200 $56,600 $63,400 $56,000 $44,000 $40,000 $37,000 $44,000 $506,000
Less Expenses Paid
(during month)1
5. Inventory or New Material -13, , , , , , , , , , , , ,160
6. Owner’s Salary -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3, ,000
7. Employees’ Wages
and Salaries -2,000 -3,000 -3,000 -3,500 -4,300 -4,300 -4,500 -4,500 -3,000 -2,500 -2,500 -3, ,000
8. Supplies and Postage
9. Advertising and Promotion -2,000 -1, , , ,000
10. Delivery Expense ,000
11. Travel
12. Legal and Accounting Fees ,250
13. Vehicle Expense
14. Maintenance Expense -1, , , ,000
15. Rent -1,100 -1,100 -1,100 -1,100 -1,100 -1,100 -1,100 -1,100 -1,100 -1,100 -1,100 -1, ,200
16. Utilities ,400
17. Telephone
18. Taxes and Licences -1, ,000
19. Interest Payments ,046
20. Insurance ,400
21. Other Cash Expenses -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2, ,000
B. TOTAL EXPENDITURES (27,050) (30,900) (35,023) (44,473) (45,200) (53,567) (56,107) (46,407) (38,107) (37,507) (34,307) (45,807) (494,456)
5,000
Continued
1. Expenses and other payments should be entered as negative (-) numbers.

13. Sample Cash Flow Forecast (Continued)
Pro Forma Cash Flow Forecast for Tough Guys Sporting Goods
12-Month Cash Flow Projections (Continued)
Year 1
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total
Capital
Purchase of Fixed Assets
Sale of Fixed Assets
C. CHANGE IN CASH FROM
PURCHASE OR SALE
OF ASSETS $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Financing
Payment of Principal of Loan
Inflow of Cash from Bank Loan 6,000 4,150 4, ,614
Issuance of Equity Positions
Repurchase of Outstanding
Equity
D. CHANGE IN CASH FROM
FINANCING $6,000 $4,150 $4,800 $813 $851 $0 $0 $0 $0 $0 $0 $0 $16,614
E. INCREASE (DECREASE)
IN CASH ($9,050) ($750) $3,977 ($60) $4,851 $3,033 $7,293 $9,593 $5,893 $2,493 $2,693 ($1,807) $28,158
F. CASH AT BEGINNING OF $10,000 $950 $200 $4,177 $4,116 $8,967 $12,000 $19,293 $28,886 $34,779 $37,272 $39,965 $10,000 2
PERIOD
G. CASH AT END OF PERIOD $950 $200 $4,177 $4,116 $8,967 $12,000 $19,293 $28,886 $34,779 $37,272 $39,965 $38,158 $38,158
MEET MINIMUM CASH
BALANCE Finance Finance Finance Finance Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept.
Minimum Cash
Balance Required =
5,000
2. This entry should be the same amount as for the beginning of the year. All other rows will be the total for the entire year.

14. TOUGH GUYS SPORTING GOODS BALANCE SHEET
Sample Pro Forma Balance Sheet
ASSETS
Current Assets:
1. Cash 9,000
2. Accounts Receivable 17,000
3. Inventory 185,000
4. Other Current Assets 27,000 ________
A. Total Current Assets $238,000
Fixed Assets:
5. Land and Buildings 0
less depreciation 0
6. Furniture and Fixtures 40,000
less depreciation 40,000
7. Equipment 0
8. Trucks and Automobiles 0
9. Other Fixed Assets 18,000
less depreciation 18,000 _______
B. Total Fixed Assets $ 58,000
C. Total Assets (C = A + B) $296,000
TOUGH GUYS SPORTING GOODS BALANCE SHEET
End of Year 1
Continued

15. TOUGH GUYS SPORTING GOODS BALANCE SHEET End of Year 1 (Continued)
Sample Pro Forma Balance Sheet
(Continued)
TOUGH GUYS SPORTING GOODS BALANCE SHEET
End of Year 1 (Continued)
LIABILITIES
Current Liabilities (due within 12 months)
10. Accounts Payable 97,000
11. Bank Loans/Other Loans 29,000
12. Taxes Owed _______
D. Total Current Liabilities $126,000
Long-Term Liabilities
13. Notes Payable (due after one year) 100,000
14. Other Long-Term Liabilities 59,000 _______
E. Total Long-Term Liabilities $159,000
F. Total Liabilities (F = D + E) $285,000
NET WORTH (CAPITAL)
SHARE CAPITAL
Common Shares 1,000
Preferred Shares 0
RETAINED EARNINGS ,000
G. Total Net Worth (G = C - F) $ 11,000
H. Total Liabilities and Net Worth (H = F + G) $296,000

16. The Relationship Between Financial Statements
Cash flow
Statement
Inflows
Outflows
Dividends
Income
Statement
Sales
Expenses
Net Income
Balance sheet
Assets
Liabilities
Equity
(Retained Earnings)
Minus dividends

17. General Linkages Between the Core Statements
Period 1
Period 2
Closing Balance Sheet
Period #1
Beginning Balance Sheet
Period #2
Beginning Balance Sheet
Period #0
Cash Flow Sheet
Period #1
Assumptions statement
Period #1
Balance sheet
Cash flow
Income
Sales
Assumption statement
Period #2
Balance sheet
Cash flow
Income
Sales
Income Statement
Period #1
Sales Forecast
Period #1

18. Estimate Capital Needed for a Range of Sales

19. Sales Revenue (thousands of dollars) Expenses (thousands of dollars)
Determining Your Breakeven Point
600
500
400
300
200
100
700
900
Fixed Expenses
Profit Area
Breakeven Point
Sales
Total Costs
Loss Area
Sales Revenue (thousands of dollars)
Expenses (thousands of dollars)