Entrepreneurship, Second Edition

Chapter 8. BUILDING YOUR PRO-FORMA FINANCIAL STATEMENTS

Financial stock chart. (Source: Photodisc/Kick Images/Getty Images, Inc.)

Many entrepreneurs are intimidated by numbers, even after they've gone through the business planning process. They understand their concept and they even have a good sense of the business model, but ask them to put together pro-forma financials or read an income statement and they have a panic attack.

You might feel that building your financials or understanding them isn't that important because you can always hire an accountant. Although an accountant is a useful advisor, in the pre-launch stage, the lead entrepreneur needs to understand the numbers inside and out. After all, the lead entrepreneur is the person who will be articulating her vision to potential employees, vendors, customers, and investors. If the entrepreneur is easily stumped by simple questions of profitability or costs, potential employees, customers, and other parties important to the new venture's success will lose confidence in the lead entrepreneur's ability to execute on the concept. Financial statements serve to bridge the entrepreneur's great idea and what that idea really means in terms of dollars and cents. So, although it can be painful, learn the numbers behind your business. The rewards of gaining this deep insight are often the difference between success and failure. ...