An under leveraged tool that could help you achieve a successful company sale one day
The expression is, don’t tell me what happened, tell me what is going to happen.
Too often executives spend their time looking out the rear view mirror when leveraging their financial, customer and operational data. The executives that are more often building the worth of their company are those taking this historical data and using it to develop proforma models that help them look out the front windshield of their vehicle as well.
The concept of a proforma model is straight forward. Take 2, 3 or more years of a data set (such as your company profit & loss statement) and from the historical results, project what your P&L will likely look like in the period ahead. Your historical data will convey trends, cyclicality, product/service mix impact, etc. about your business and you can use these to build a proforma P&L statement for your business that gives you insights as to what future performance could be. A strong controller or CFO will be able to take your historical results and provide you with a glimpse into your future…and do you like what you will see? If yes, keep working your plan. If not, identify changes to drive different results.
Certainly, a proforma is a guess, an estimate but it’s a highly educated one. Don’t fly blind in making strategic decisions about your business direction. Leverage your financial, operating and customer data to build proforma models. You’ll find doing so also facilitates great internal dialog with your team as you review the proforma together.
Add the muscle of using proforma models in your business – proforma your financials, including cash flows, proforma what a new product/service launch might look like revenue and margin wise, proforma what a new customer or even a new market sector could look like if you launch/enter it. Developing such a muscle will have you on a faster path to creating company worth and will be a gift to your future self when an acquirer rewards you for what you’ve built.
