Pizza Today - February 2024 - 61

new-age business plans are more like
vision boards; a bank or an investor
does not care about your logo nearly
as much as they care about your
projection for profit. The strategy and
intent are all good to know, but hard
data matters most.
The Role of Pro Forma in Business
Expansion
Informed Decision-Making:
A pro forma allows you to project
the financial outcome of opening a
new pizzeria. It considers locationspecific
costs, potential customer
base and expected sales, giving you a
clearer understanding of whether the
venture is financially viable. These are
massive considerations that must be
highly evaluated. If you haven't considered
the worst-case ending profit,
you are flying blind into the ether on
a hope and a prayer.
Attracting Investors:
Investors are primarily interested in
numbers. A well-prepared pro forma
can demonstrate the potential profitability
of your new venture, making it
easier to secure funding. It's like any
sales proposal you go through, but in
reverse, instead of the all-in cost on
the last page, the investor wants to
see the potential return in that final
column. They also want to see that
the potential return is rooted in solid
factual research, not just " restaurants
like this make as much as (blank) per
year. " or " We'll probably make about
(blank) per year. " Instead, they want
to hear, " Based on all this data and
site research, we can conservatively
say this concept should yield (blank)
per year based on these projections in
the pro forma. "
Risk Management:
Expansion comes with risks. A pro
forma helps you anticipate and plan
for potential financial challenges,
ensuring you're not caught off guard.
A WORD OF WARNING: DO
NOT create a pro forma with an
optimist mindset. Fill it out assuming
low revenue and high labor costs.
That way, if it still shows a profit, you
know with more certainty this is a
solid venture.
Comparative Analysis:
If you're considering multiple locations
for expansion, pro formas can
be prepared for each, allowing for a
side-by-side comparison to determine
the most promising option. These will
vary based on how many seats you
have on-site and the average income
metrics of the surrounding area.
How to do it:
Developing a pro forma might
seem daunting, but it's essentially
about understanding and projecting
your business numbers. Here are
some key components:
Revenue Projections:
Estimate the sales your new location
might generate. Consider factors
like foot traffic, menu pricing and the
size of the establishment. The size
only matters, though, if the seating
is there. If the location is all kitchen
and very little seating, it will translate
to a poor pro forma. Butts in seats are
the determining factor to the success
of most pro formas.
Cost Analysis:
Include both one-time costs (like
renovation and equipment) and
ongoing expenses (like rent, utilities,
staff salaries, and how many people it
will take on shift to make this thing
run). If you have a massive location
and the kitchen is super spread
out, it will require more people to
operate, affecting your projections.
Meanwhile, if the location is lean
and mean and can pump out tons of
product with minimal staff serving a
large audience, that is a better setup
for success.
Profit Projection:
Deduct your estimated costs from
the projected revenue to forecast
profit. This will give you a sense of
the financial health of the proposed
expansion. And remember, if it
doesn't pass muster, ditch it. This is
a business, not a hobby. Do not fall
in love with a location or the vibe;
many gorgeous high-end restaurants
close daily because of rent, bad foot
traffic, poor visibility and overall poor
planning.
Why a Pro Forma Can Be More
Insightful Than a Business Plan
While a business plan is great
for new operators to map out their
brand's strategic direction and goals
for their own guidance, a pro forma
provides the numerical backing for
those strategies. If your brand is
established, making a business plan
is optional. The pro forma translates
your business plan into quantifiable
expectations and realities. A pro
forma brings the financial implications
of your business decisions into
sharp focus, making it an indispensable
tool for any expansion.
In summary, a pro forma is not just
a financial document; it's a map for
growth, a reassurance for investors
and a reality check for your business
aspirations. It separates dreams from
reality and aspirations from concrete
facts.
As you contemplate your next steps
in expanding your pizzeria, remember
that a comprehensive pro forma is
not just beneficial - it's a fundamental
necessity. It makes you a LITERAL
fortune teller, seeing if you will
make money or not and if the project
is a GO or a PASS.
MIKE BAUSCH is the owner of
Andolini's Pizzeria in Tulsa, Oklahoma.
Instagram: @mikeybausch
Pizza Today - February 2024

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