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How to Create an Accurate and Useful Business Revenue Model or Proforma
How Local Sacramento Area Business Owners and Start-Ups Can Create an Accurate and Useful Business Revenue Model or Proforma to Predict Income, Expenses and Profit
Some entrepreneurs are afraid of or “allergic” to math or financial models. It seems like a chore and not worth the effort. This article is designed to make it easy for you and well worth your time.
When deciding on what business to get into as a start-up entrepreneur, you will want to create a simple revenue model to get proof of concept and validate or delete options based on data, not emotion.
For example, let us say you want to make $10,000 a month in your business. If you decided you wanted to sell pencils for $1 apiece, you would need to sell 10,000 units to reach your goal. Selling one at a time wouldn’t make sense – a ton of work! This simple revenue model would tell you that you need clients that buy in bulk and ideally buy every month, so you could exceed your goal.
Sometimes, it is useful to create a revenue model with your goal in mind and include milestones to track your progress by month or quarter. Feel free to use this framework if it is helpful:
Your specific, measurable goals & revenue model:
Monthly Gross Cash Flow: $__________ in 3 months, $_________ in 6 months,
$____________ in 1 Year, $____________ in 18 Months.
Monthly Net Cash Flow: $__________ in 3 months, $_________ in 6 months,
$____________ in 1 Year, $____________ in 18 Months.
Product/Service #1 ______________________ profit per unit or hour $ ________
Product/Service #2 ______________________ profit per unit or hour $ ________
Product/Service #3 ______________________ profit per unit or hour $ ________
Product/Service #4 ______________________ profit per unit or hour $ ________
# leads per month _________________
% conversion ratio __________ = # sales divided by # leads times 100
# product/hours services sold per month __________________
For bigger start-up businesses or more established entrepreneurs that want to update and strengthen their business plan and predicted income and expenses, a proforma model is useful. Keep in mind that these financial predictions are based on past data, industry research and some educated guesses. It most likely won’t be entirely accurate, so it is wise to be conservative in your numbers (less than predicted income and some buffer for expenses). It’s nicer to be pleasantly surprised than overly optimistic.
A proforma (I just looked up the word for the fun of it, and it really means “standard financial document”) in this case looks just like a standard simple P&L report from your chart of accounts, but is predicted income and expenses for future years (generally 2-3 years out).
You can find free spreadsheet models online or create your own. Be sure to run the data by a trusted business accountant or fractional chief financial officer [CRO] to get feedback on the accuracy of your predictions and ideas for any expenses you may have overlooked.
Another valuable financial tactic for your business is to use the proforma predictions and then plug in the actual numbers every month to see progress and how accurate your forecasts are. The whole point of predictive business financial models is to make your dream a reality. It is best to set goals and milestones prior to creating your action plan.
Ask me about my proprietary software that helps business owners prioritize their business development action items and get more bang (profits) for their bucks (literally). You could qualify for a free analysis …
If you have any questions regarding this topic or want help creating a revenue model or proforma for your business or start-up idea, feel free to reach out and contact me for a free consultation. Click here for contact information or here to set up an appointment.
Proudly helping local business owners with proforma business financial models in the greater Sacramento area. My office is in Folsom, and I can help remotely on Zoom or Teams or in person in Citrus Heights, Rancho Cordova, Loomis, Granite Bay, El Dorado Hills, Orangevale, Roseville, etc … we have helped over 600 clients in 9 countries … looking forward to helping you.