This model assumes an on-going business, as the results are based on previous financial information you will provide. If you are a new business, you can input information about your new company based on what you intend to do and then adjust the information in the "What-If" section.
A segment of the systems diagram is shown next to the description. The entire diagram can be accessed by clicking on the link or the picture. It is worthwhile to study the diagrams to understand the relationships which exist in the model. The more you understand that "poking" here results in a "bulge" there, the more skilled you will become at managing your business and foreseeing the effects your management decisions will have.
The downloadable interactive spreadsheet will crunch your numbers and provide you with useful, actual forecasts for your planning and management efforts. An important aspect of the spreadsheets is the "What-If" section, which allows you to change the inputs and immediately see the effect on Pro-Forma Profits. This section of each spreadsheet lets you see the effect of decisions you make to increase your advertising, change positioning of your company, increase salaries, decrease costs, and adjust several other variables.
Use the Pro-Forma spreadsheets to see what next year could look like, and to develop benchmarks for future performance. Once you have adjusted the various inputs to what you think are realistic projections, use those numbers as goals to direct your thinking and planning for the coming month, quarter or year.
Let me know if these spreadsheets are useful for you, or if they should be modified to work better. I look forward to hearing from you.
This pro-forma model strives to forecast the future by analyzing Market Share to determine profitability.
The diagram, a section of which is shown to the right, demonstrates the relationships of the various components of this system. You can download a PDF of the model by clicking on the button below.
Your Share of the Market is determined by dividing the number of projects you built in the last period by the totals number of permits issued in your market in the last period. The total number of permits in your market for the last period should be available from your local Building Department, which generally has a database of construction information available to the public.
Once you have determined your Share of the Market, that number is multiplied by the expected total size of your market for the next period to establish Pro-Forma Sales.
Admittedly, this "Expected Total Size of the Market" number is a bit tricky to define because it consists of future expectations. However, the following organizations can be helpful in coming up with a consensus figure that can be used:
Each of these organizations should be doing its own forecasting, and may be able to provide forecast numbers to you. If all else fails, look at the past performance of your market, consider the economic environment, add in whatever factors you feel are important, and generate your own Total Market Forecast. Any reasonable forecast will result in a useful working number. And any number is better than no number, as the discipline of conducting a pro-forma forecast will make you a better businessperson.
From this point, expenses are calculated based on a combination of past performance and future expectations. These fixed and variable Costs are subtracted from the projected Sales to produce the projected Profits for the period for which you are planning.
To develop your company's actual results of these calculations, we have prepared an interactive Excel template for your use. The interactive Market Share Profitability Template can be accessed by clicking on the "Download" button below. You can see what the form looks like by clicking on the "View" button below. With a few inputs from you, this template will provide useful information as you plan your next period operations.
We have added a very useful component to this spreadsheet. The "What-If" analysis piece is meant to provide a look at the effect on future profitability of changing the inputs. You can answer questions such as "What if, by improving how my business is viewed by my market, I can increase my share of the market by .05%?" or "What if, by controlling my subcontractor cost better, I was able to decrease my Direct Labor Costs by 2%?" or "What-if, by understanding what my prospects are looking for in a house, I could increase my average selling price by 5%?".
Then, once you have generated the mix of Sales and Costs that provide the level of Profit you seek, the numbers should become your benchmarks for the next period.
To demonstrate, if you expect to have a Pro-Forma Market Share of .25% (one-quarter of one percent), but find yourself falling below that mark, you will need to review your lead-generating efforts and determine what you could be doing better.
Or, if you expect your materials costs to be at 37%, and find that the actual is at 42%, you will need to review your purchasing procedures to see what can be changed.
You can only improve what you can measure. This template will help you do that.
Hint: For some help in analyzing your Total Market and your place in it, see the discussion of Market Positioning.