What is your balance sheet going to look like next year? The year after? What about three years from now? Do you care? Many times the answers to these questions are: not sure, no idea, don’t know and yes I care but I don’t have the information to properly answer these questions. It’s very typical for a small or medium sized business to not know what their financial statements are projected to look like over the coming year much less the next three years. Many times they will have a budget (that is usually inconsistent with their historical performance) but haven’t done the work to take the budget one step further and have it flow into an actual set of pro forma financial statements.
What are pro forma financial statements and why do they matter?
In working with a client recently, we were discussing their projections for the current year because they are looking to payout some higher interest debt on their balance sheet with less expensive debt that they thought might be available from a bank. As we went through the math it became obvious to them that their projections were not going to be enough to meet the requirements of the bank. As I sat with them going through some of the options, I thought I would share one of the easiest methods a business can use to sharpen up its numbers and make a better presentation to a bank. Continue reading “But what if our business doesn’t make enough money?”→