Throughout this discussion, we will discuss pro forma financial statements and the importance of well-crafted financial forecasts for new business ventures. You may draw from personal experiences, your own research, or what you have learned from the readings.

Read the article "Finance in Action: Pro Forma Financial Statements: A Critical Tool for Entrepreneurs" in Chapter Four of your text.

Choose one of the following options for your response. Provide a reference for your interview.

OPTION ONE: Interview an entrepreneur and discuss the use of pro forma financial statements during the borrowing process. Specifically, discuss the use of Pro Formas during the startup of the business or an expansion.

• Who needed the Pro Formas?
• Were they fairly accurate?
• What were some of the challenges associated with creating pro forma statements

OPTION TWO: Interview a commercial banker. Discuss the use of pro forma financial statements during the borrowing process. Specifically, discuss the use of Pro Formas during an entrepreneurial startup or a business expansion.

• Why does the bank require Pro Formas?
• Were they fairly accurate?
• What were some of the challenges associated with the use of Pro Forma statements?

Finance in Pro Forma Financial Statements: A Critical ACTION Tool for Entrepreneurs Managerial b Creating forecasts and producing detailed pro forma financial statements rarely start out as anyone's idea of a good time. The level of detail required, the complexity of the decisions necessary, and the research required to make any of those decisions can be daunting, espe- cially to a first-time entrepreneur. So why is it so important for entrepreneurs to thoughtfully develop their financial forecasts? The answer is twofold. First and foremost, as Bobby Bahram of Excelerate Health Ventures, an early-stage venture fund in the Research Triangle Park region of North Carolina, says, "The number one job for a startup CEO is not to run out of money." Thinking through how much cash you have, how much cash you need, and the dif- ferent scenarios you may face is the ultimate responsibility for an entrepreneur, and your financial statements are your toolbox. The second reason that pro formas are so important is that potential investors want to be able to evaluate the financial outlook for the firm. Many entrepreneurs will seek investment either from "angel" investors or venture capital funds, and what these investors are looking for are: 1. To clearly understand the short-term (12- to 18-month) cash forecasts. 2. To comprehend key operational factors such as the firm's a. Burn rate (how fast it is spending money). Runway (how long it will have enough cash funds to operate). C.Value-changing milestones (key points at which the company's value changes because of a signifi- cant accomplishment). In the end, the difference between well- crafted and poorly done financial forecasts comes down not only to the accuracy and the depth of the analysis but also to the entrepre- neur's ability to simply articulate and discuss the numbers. Venture capitalists like Bahram look for aspiring entrepreneurs who focus first on detailed monthly cash-based financials, especially for seed and early-stage ventures. Too often, entrepreneurs use templates that introduce complexity that is not needed in the start-up phase. Simple metrics are frequently the most important, and entrepreneurs who add unneeded complexity to pro formas are often better off spending their time on operat- ing and improving their new business