Pro-formas

HA401 : The Class : Finance : Pro-formas : Pro-formas

Developing Pro-formas

A Pro Forma is a financial projection used to plan expected revenues and profits for a new business. It is based on assumptions about expected business levels for the new business. According to assumptions made, projections are calculated for expected revenues, expenses and profits. It is the initial financial document that outlines financial expectations.

The pro forma is used for two primary reasons. First, it is used by bankers and developers to determine if expected revenues, profits and cash flows for a new business are sufficient to repay development and bank loans. Ratios and industry standards are used to compare the financial results outlined in the pro forma to determine if loans can be relayed in a suitable time frame. Second, it is the first projections of what the new business will be expected to generate in terms of revenues, profits and cash flows. After the first year of operation, a budget based on actual performance will replace the pro forma.

Following is a Pro Forma Planning exhibit that contains the necessary information to create a pro forma. It includes an example that prepares a pro forma for a golf course. It is important to start off with assumptions about the business conditions that will affect operations. This can include the competition, economic conditions, and operating levels. Often several pro formas are developed that demonstrate best, most probable, and worst case scenarios. Different assumptions are made in each of these examples.

You will need to prepare a one year revenue pro forma for your final project. This exhibit is an example of how to prepare a pro forma. It will show you step by step how to make assumptions and follow up with rates and volumes to generate revenues. As is often the case with resorts, the seasonality aspect of resort operations make pro formas more difficult to prepare.

Be sure to contact or e-mail your professor to discuss any questions that you might have regarding preparing pro formas. While the basics are the same for a resort, golf, spa or specialty restaurant pro forma, the type of operation is different and will require modifications and adjustments to focus on the specific type of operation..

PRO-FORMA PLANNING

ASSUMPTIONS

What you are projecting, nature of operations
Length of time
Rate
Volume

EXAMPLE

Golf course revenue for one year, ALL DAYS ARE EQUAL
Start with day, then week, then month, then year

10 hours per day, 7:00 am to 5:00 pm
tee times every 10 minutes, 6 tee times per hour
average two players per tee time

$50 per player greens fees
2 players x 6 tee times per hour = 12 players per hour
12 players per hour x 10 hours per day = 120 players per day
120 players per day x $50 greens fees = $6,000 revenue per day
$6,000 revenue per day x 7 days = $42,000 revenue per week
$6,000 revenue per day x 30 days = $180,000 revenue per month
$6,000 revenue per day x 365 days = $2,190,000 revenue per year

SEASONAL

High Season is 5 months-22 weeks low season is 7 months-30 weeks
Above is for low season

30 weeks x $42,000 per week = $1,260,000 low season rev

High season assumptions

$100 per player greens fees, 3 players per tee time
3 players x 6 tee times = 18 players per hour
18 players per hour x 10 hrs pr day = 180 players prdy
180 players prdy x $100 greens fees = $18,000 rev prdy
$18,000 rev prdy x 7 days = $126,000 rev per week
22 weeks x $126,000 rev per week = $2,772,000 high season

TOTAL ANNUAL REVENUE $1,260,000 low season + $2,772,000 high season = $4,032,000 Total

Once you have completed this module you should:

Go on to Assignment 1: Develop a Rate Structure
or
Go back to Topic 3: Pro-formas

E-mail Lloyd Shelton at Lloyd.Shelton@nau.edu
or call (928) 527-7518