When you’re selling your business, it’s natural to want to promote your past successes. But investors aren’t as interested in where you’ve been as much as where you’re going. That’s why projections of future performance are so critical. 

If there was ever a transaction that included an infinite amount of variables, it’s the sale of a business. There are multiple details to consider, including financial performance, management team, company culture – the list goes on and on.

But the one detail that rises above the rest are the company’s financial projections. An investor is interested in your past, sure, but they’re buying your company for the future. Your projections need to be both realistic and optimistic, and will contribute heavily to your company’s price tag.

You’re expected to be optimistic with your Pro Forma
A Pro Forma financial statement typically includes projections for the future, including net revenue, cash flow, expenses and anticipated profits. It uses your current financial statements to build a picture of the future.

If created for internal use, these projections should be as accurate as possible. Your numbers should be a true expectation. For external use, you’ll need to be more optimistic, including a stretch goal for your company. Obviously, you’ll be using your Pro Forma for external use when selling your business.

According to John Emory Jr. of the investment banking boutique Emory & Co., an investor will expect to see a multi-year projection as part of the Pro Forma. They will scrutinize income statements and budgets from the past (and some will only consider past performance), but the real focus for many will be on anticipated cash flows for the next 3-5 years.

I mentioned that these projections should be optimistic; investors will expect it. In fact, they’ll always discount your projections, assuming that your numbers will be slightly rosier than reality. “You’d be doing yourself a disservice if you put out a projection that wasn’t optimistic,” Emory cautions.

Don’t confuse “optimism” with random numbers. Growth projections pulled out of the air won’t do much to convince a skeptical investor. Let’s take a closer look at how to be both optimistic and realistic in creating a Pro Forma.

The More Detailed, The Better
Emory notes that the more detail and logic you provide in your Pro Forma, the more likely you and an investor will accept your projections. Here are some tips to ensure your projections are solid:

Base projections on a customer-by-customer basis
Some companies simply set growth projections based on a percentage – random as it may be. They’ll project an increase of 4%, for example, with little or no explanation as to why. 

A more accurate method for estimating sales, for example, is to conduct a customer-by-customer audit of all your customers. Project what their individual sales will be for the future and then aggregate that number. You’ll be far more accurate than a straight percentage prediction, and the logic will stick with an investor. Of course, this may only be practical for your larger customers.

Be accurate out of the gates
Your predictions should be accurate for the first six months, considering your budget for next year is typically set. However, future predictions can curve up like a hockey stick. Predictions that rise straight up are unrealistic, but a curved growth line is more readily acceptable.

Remember that five years is the standard
You’ll want to create a Pro Forma that includes projections of typically 1-, 3- and 5-year outlooks. While a 5-year projection doesn’t seem realistic in today’s rapidly changing world, it will be expected on the part of many buyers.

“Investors will make their own projections,” Emory says. “And they may throw yours out. But it helps them anchor to a stronger price.”

Don’t Forget the Valuation
If you’re considering selling your business, I always recommend conducting a valuation (also called an appraisal). Getting a clear understanding of how much your company is worth will help you set realistic expectations for yourself and may even reveal that the time is not right to sell.

The type of valuation you conduct will vary based on the size of your company and purpose of the appraisal. A larger company, for example, may be requesting a formal appraisal for a legal purpose such as buying out a partner or granting stock options. In this case, you’ll need a complete summary appraisal. A less formal valuation summary is a calculation of value. This report includes your basic company information, a brief financial summary and a summary of the valuation methods used to create the report.

Either type of valuation gives you a view of the past, and for some companies, that’s all they need. Berkshire Hathaway, Emory notes, just asks for financials from the previous years. They don’t base their price on your projections. However, a valuation can serve as a great starting point for negotiations. If you can agree upon the current value, then your Pro Forma projections carry much more weight.

The ultimate value: A quantitative match to your qualitative strategy
I’ve written extensively how the quantitative world and the qualitative world need to work in tandem to deliver results. If you achieve a quantitative goal, it will confirm that your qualitative strategy was correct.

Most Pro Formas are created by a chief financial officer and then tweaked by the senior management team. That’s a great combination of quantitative and qualitative visionaries who can collaborate on a rosy, yet realistic, sales tool that will be the strongest piece of your pitch. When you’re selling your business, a Pro Forma serves as the quantitative actualization of your vision. It explains the financial impact of your business, showing that your vision of the future can translate into cold, hard cash. 

This serves as the final challenge for you as a business owner. If you can demonstrate how your company will grow and generate strong cash flows, a big price tag for your business can be your reward.


Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. Rock can be reached by email at [email protected].