Recall Lola and Jacob’s taco restaurant and bar at Dewey. Now they are in their 3rd year and they need to make some financial decisions moving forward. They want to find a way to grow sales and Lola thinks that they should take a loan for about $50,000 to expand to add an outside patio with an outside bar, while Jacob thinks a more organic approach to sales generation through marketing is key. Jill thinks that adding another $5000 to annual marketing budget is the way to go.

Consider the scenario: Jacob tells Lola about a pro-forma cash flow statement and Lola of course thinks it is too technical and that looking back at the historical sales revenue is all that they need to make decisions about the company's future. You're at their bar with friends talking about your awesome ENT 240 class and Jacob overhears. She approaches and asks for your help in speaking with her business partner about pro forma financials.

You agree. She walks Lola over and the first thing he asks is "Why do I need a pro forma anyway? It seems like unnecessary work and it is not even GAAP approved."

Explain the following: 

1. 1. What are 1 or 2 benefits of financial forecasting? What problems can pro forma financials help to resolve?

1. 2. Using the information for How to create pro forma statements in the article, draft a sample pro forma cash flow statement for Mike and Jill using the figures in the article.

2. 1. 3.a. Assume, the sales revenue for MJ tacos and tequila is $ 40,000/ mth currently. 

   2.   b. Cost of goods is $15,000/month, Rent $2500/month, Advertising and marketing $2500 per year, payroll $1500/month, owners draw is $1000 each per month.

   3.  c. Consider both scenarios. Using a multi-column Excel spreadsheet, draft a pro forma cash flow statement that shows a side by side comparison for Jills approach and for Mike's approach to see which one produces better figures. 

   4.  d. Briefly explain the findings for the pro forma cash flow comparison you developed in a 3 - 5 sentence narrative.

Answer rating: 100% (QA)

1 Benefits of financial forecasting and how pro forma financials help to resolve problems a Planning Financial forecasting allows businesses to plan for the future by estimating their financial perfor... View the full answer