Question

Joe Matsuoka, a friend of yours, has developed a new wireless application that he feels will revolutionize the communications industry. He has been turned down by several potential investors who seemed to like the idea but insisted on seeing pro forma financial statements as part of a business plan. Joe doesn't think it's a good use of his time to develop pro forma financial statements. He believes, "If the product is good enough, the financials will take care of themselves." Why is Joe's position unwise? In your opinion, how common is the position Joe is taking about financial statements?

Answer 1

Joe''s position is unwise because:

1)he hasn't considered the revenue as well and quantity delved out of the same.

2)he hasn't considered the costs in terms of direct,indirect, depreciation, admin and staff involved on the same.

3)He hasn't considered the capital structure as to what mix of debt and equity will be required.

4) he hasn't considered the working capital structure on the same.

This is a comm on problem, and projections in terms of p&l as well a's balance sheet structure is important