Section 26.4: Financial Pro Forma: Revenue Streams and Expense Forecast

26.4.1 The “Why”: The Pro Forma is Your Business Plan’s “Proof”

In the previous sections, you have built the story of your business. You’ve analyzed the market (26.1), defined your service “wedge” (26.2), and estimated what it will cost to open your doors (26.3). Now, you must translate that story into the only language an investor or bank truly understands: numbers.

A financial pro forma is a set of forward-looking, “projected” financial statements that tell the complete financial story of your startup. It is not a random guess. It is a defensible argument built on a series of logical, interconnected assumptions. It is the “proof” that backs up every claim in your business plan.

This set of documents—typically a 3- to 5-year forecast—is the “flight simulator” for your business. Before you risk $500,000 in actual capital, you can use this model to ask critical questions:

• “What happens if my script volume is 20% lower than I expect for the first 6 months?”
• “What if PBMs cut reimbursement by 2%?”
• “What if my ‘float’ (reimbursement cycle) is 120 days instead of 90?”
• “At what exact script volume does my pharmacy become profitable?”

The pro forma lets you “crash” the plane on paper, so you don’t crash it in real life. It is the single most important tool for raising capital. When you ask a bank for a $750,000 SBA loan, their first and only question will be, “How will you pay it back?” Your pro forma is the answer. It shows them exactly how you will use their capital (CapEx), how you will survive the initial “burn rate” (OpEx), and how your projected revenue will create the profit and cash flow to repay the loan. This section is your masterclass in building it from the ground up.

26.4.2 The 3 Core Financial Statements: Your “Financial Vitals”

Your pro forma is built on three core documents. They are not independent; they are deeply interconnected and tell a complete, interlocking story. You cannot make one without the other two.

Masterclass Table: The Three-Statement Model Explained

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Financial Statement	The Core Question It Answers	Simple Analogy	Simple Equation
1. The P&L Statement (Profit & Loss, or Income Statement)	“Am I profitable?” It’s a “report card” for a specific period of time (e.g., “For the month of March, did I make or lose money on paper?”).	The Report Card. You got an “A” (profit) or an “F” (loss). It tells you the result, but not how much cash you have.	Revenue – Expenses = Net Income
2. The Cash Flow Statement	“Where did my cash go?” This is the “checkbook register” for the same period. It reconciles “profit” with “cash in the bank.”	The Bank Statement. This is your financial “lifeblood.” This is the most important statement for survival.	Cash In – Cash Out = Net Change in Cash
3. The Balance Sheet	“What is my net worth?” It’s a “snapshot” of your company’s health at a single point in time (e.g., “As of March 31st…”).	The Physical Exam. It shows your total health (Assets) vs. your sicknesses (Liabilities).	Assets = Liabilities + Equity

26.4.3 Masterclass: Building Your Revenue Projections (The “Top Line”)

This is the “art” of your pro forma. Your expense projections are relatively scientific, but your revenue forecast is an educated, defensible prediction. This forecast must be built “bottom-up,” not “top-down.”

• Wrong (“Top-Down”): “There are 1,000 rheumatologists in my state. If I can just get 1% of the market…” This is a fantasy.
• Right (“Bottom-Up”): “I have a personal relationship with Dr. Smith and Dr. Jones at ‘Main Street Rheumatology.’ They see 300 Humira patients. Their office manager hates Accredo. They have agreed to send me their first 5 new patient starts in Month 1.” This is a defensible assumption.

Step 1: Projecting Script Volume (Your Patient “Funnel”)

You must build your forecast prescriber by prescriber, based on your “wedge” (26.1). This forces you to be realistic.

Tutorial: The “Bottom-Up” Script Volume Forecast (First 6 Months)

Target Prescriber / Group	Defensible Assumption	M1 Scripts	M2 Scripts	M3 Scripts	M6 Scripts
Main Street Rheumatology (2 Docs)	They are your “champions.” They will send 5 new starts in M1 and ramp up as you prove your service.	5	8	12	25
Uptown GI Group (4 Docs)	You have a “warm intro.” They are skeptical but willing to “test” you with 1 patient each.	4	5	6	15
Hospital-Employed Neurologist	You have no relationship, and they are tied to the hospital SP. Assume 0 scripts.	0	0	0	0
Total Scripts (New)	Sum of your targets.	9	13	18	40
Total Scripts (Refill)	Patients from the prior month (assuming chronic therapy).	0	9	22	110
TOTAL DISPENSES	(New + Refill)	9	22	40	150

Step 2: Projecting Revenue Per Script (The “Blended Average”)

You cannot possibly forecast the exact reimbursement for 100 different drugs and 50 different PBM plans. You must create a “blended” average based on your chosen therapeutic area. This is a critical assumption.

• Reimbursement Rate: This is the total amount you collect from the PBM and patient. It is based on your future payer contracts. A conservative assumption for a “blended” contract is AWP – 18% or ASP + 5%.
• Drug Cost (COGS): This is what you pay the wholesaler. This is based on your GPO contract. A good assumption is AWP – 22%.

Step 3: Calculating Total Projected Revenue

This is now simple math. We will use our blended $5,000 average revenue per dispense.

Total Revenue (Month 1): 9 dispenses x $5,000/script = $45,000
Total Revenue (Month 2): 22 dispenses x $5,000/script = $110,000
Total Revenue (Month 3): 40 dispenses x $5,000/script = $200,000
Total Revenue (Month 6): 150 dispenses x $5,000/script = $750,000

You now have your “top line” (revenue) forecast for your P&L statement. This is the engine of your entire model.

26.4.4 Masterclass: Forecasting Your Expenses (COGS, OpEx, and “The Claw”)

With revenue projected, you can now project your expenses. These fall into two categories (Variable and Fixed) and include one “hidden” expense that is unique to pharmacy.

1. Cost of Goods Sold (COGS) – Your “Variable” Expense

This is the direct cost of the drugs you dispense. It is a variable cost because it scales perfectly with your revenue. If you dispense 0 scripts, your COGS is $0.

• Assumption: From our calculation above, we are assuming a blended Gross Margin of 6%.
• This means our COGS is 94% of our revenue.

COGS (Month 1): $45,000 (Revenue) x 94% = $42,300
COGS (Month 3): $200,000 (Revenue) x 94% = $188,000
COGS (Month 6): $750,000 (Revenue) x 94% = $705,000

Your Gross Profit is simply Revenue – COGS. This is the total per-script profit you’ve earned.
Gross Profit (Month 1): $45,000 – $42,300 = $2,700
Gross Profit (Month 6): $750,000 – $705,000 = $45,000

This $45,000 in Month 6 is the money you have left over to pay for everything else (your staff, your rent, your loan). This is the “profit” from the scripts.

2. Operating Expenses (OpEx) – Your “Fixed” Expense

This is your “burn rate” that you calculated in Section 26.3. This is a fixed cost. You pay it whether you fill 1 script or 1,000. For our model, let’s use the $42,125/month we projected in 26.3.4.

3. The “Hidden” Expense: DIR/GER/Clawback Fees

This is the most dangerous and most misunderstood expense. These fees are not a “reduction of revenue.” They are a retroactive expense. You must account for them, or your P&L is a lie.

26.4.5 Putting It All Together: Your 3-Statement Pro Forma Model

Now you have all the “ingredients.” The final step is to “bake the cake”—to build the three statements so they “talk” to each other. This is your “Investor-Ready” model. A change in one number (like “Month 1 Scripts”) should automatically update all three statements.

1. The Profit & Loss (P&L) Statement (Forecast)

This is your “Report Card.” It shows your profitability on paper. This table clearly shows the Gross Profit (from scripts) and the Net Loss (after all bills are paid).

P&L Statement (Projected)	Month 1	Month 6	Year 1 Total
Revenue	$45,000	$750,000	$2,500,000
Cost of Goods Sold (COGS) (at 94%)	($42,300)	($705,000)	($2,350,000)
Gross Profit (Per-Script Profit)	$2,700	$45,000	$150,000
Operating Expenses (OpEx)
Staffing Costs	($30,625)	($30,625)	($367,500)
Facility, Tech, & Admin	($11,500)	($11,500)	($138,000)
Total OpEx (Fixed Bills)	($42,125)	($42,125)	($505,500)
Other Expenses
DIR/GER Fee Expense (at 3%)	($1,350)	($22,500)	($75,000)
Depreciation (Non-Cash)	($2,000)	($2,000)	($24,000)
Interest Expense (on Loan)	($3,000)	($2,800)	($34,000)
Net Income (Loss) (Company Profit)	($45,775)	($22,425)	($488,500)

Analysis: This P&L clearly shows you are making Gross Profit (the green line) every month, which is good. But this profit isn’t enough to cover your OpEx and DIR fees, so you have a Net Loss (the red line). This is a planned, temporary loss. The key trend is that the Net Loss is shrinking every month, showing you are racing toward your break-even point.

2. The Cash Flow Statement (Forecast)

This is your “Bank Statement.” It shows your actual cash survival. This is the most important statement.

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Cash Flow Statement (Projected)	Month 1	Month 3	Month 6
Cash Flow from Operations (CFO)
Net Income (from P&L)	($45,775)	($38,000)	($22,425)
+ Depreciation (add back non-cash)	$2,000	$2,000	$2,000
Change in Accounts Receivable (A/R)	($45,000)	($200,000)	($750,000)
Change in Accounts Payable (A/P)	$42,300	$188,000	$705,000
Net CFO	($46,475)	($48,000)	($65,425)
Cash Flow from Investing (CFI)
– CapEx (Build-out)	($200,000)	$0	$0
Cash Flow from Financing (CFF)
+ Loan Proceeds	$750,000	$0	$0
– Loan Repayment	($3,000)	($3,000)	($3,000)
Net Change in Cash	$500,525	($51,000)	($68,425)
Beginning Cash	$0	$401,525	$221,100
Ending Cash Balance	$500,525	$350,525	$152,675

Analysis: This statement shows why the P&L is deceptive. The “Change in A/R” (in red) is your “float.” This is the $750,000 in revenue you *earned* but *did not collect* in Month 6. This creates a massive negative cash flow from operations (CFO), even as you get closer to profitability. Your Ending Cash Balance is your survival metric. The $152,675 in Month 6 is your “cash trough.” This proves that your $750k loan was enough to cover your $200k CapEx and your first 6 months of operational cash burn.

3. The Balance Sheet (Forecast)

This is your “Net Worth” snapshot. It proves your model is balanced: Assets = Liabilities + Equity.

Balance Sheet (As of End of Year 1)	Amount
ASSETS
Current Assets
Cash	$150,000
Accounts Receivable (A/R)	$1,500,000
Fixed Assets
Equipment & Build-Out	$200,000
– Accumulated Depreciation	($24,000)
TOTAL ASSETS	$1,826,000
LIABILITIES & EQUITY
Liabilities
Accounts Payable (A/P)	$750,000
DIR Fees Payable	$75,000
SBA Loan (Long-Term Debt)	$714,500
Equity
Owner’s Investment (Assumed)	$75,000
Retained Earnings (Y1 Net Loss)	($488,500)
TOTAL LIABILITIES & EQUITY	$1,826,000

Analysis: Your Assets ($1.826M) equal your Liabilities + Equity ($1.826M). The model balances! This snapshot tells an investor that after Year 1, you have a negative equity of -$413,500. This is normal for a startup. But it also shows you have $1.5M in A/R (a massive asset you are waiting to collect) and $150k in cash (you survived). This is a picture of a viable, growing business in its high-investment launch phase.

26.4.6 The “Flight Simulator”: Sensitivity Analysis & KPIs

Your pro forma is built. It is not meant to be framed and put on a wall. It is a dynamic tool. The final step is to “use” it to stress-test your business and manage your performance.

1. Key Performance Indicators (KPIs)

Your model has just created your “budget” or “forecast” for every metric that matters. You must now track your actual performance against this forecast every single month. This is how you manage your business.

2. Sensitivity (Stress-Test) Analysis

This is when you use your model as a “flight simulator.” You go into your spreadsheet and change your key assumptions to see if you “crash” (i.e., your Ending Cash Balance goes to $0).

• Scenario 1: The “Slow Launch”
  • Action: Cut your “Total Scripts” projection in half for the first 6 months.
  • Question: Does your cash balance survive? Or do you run out of money in Month 7?
  • Result: This tells you if you have enough “runway” (cash) to survive a slower-than-expected start.
• Scenario 2: The “Reimbursement Cut”
  • Action: Change your Gross Margin assumption from 6% to 4%.
  • Question: At what month do you now become profitable? Does it push your break-even point from Month 9 to Month 18?
  • Result: This shows you how much “pricing pressure” your business can withstand.
• Scenario 3: The “A/R Disaster” (The Most Important Test)
  • Action: Change your A/R collection “float” from 90 days to 120 days.
  • Question: What happens to your “cash trough”? Does your lowest cash balance go from $152k to -$50k?
  • Result: This proves how much of a cash buffer or line of credit you need to survive PBM payment delays. This one test is often what convinces a bank to give you a larger line of credit.

Conclusion: The pro forma is not a simple “budget.” It is the most powerful strategic tool you have. It connects your market analysis to your operational plan and proves, in black and white, that your business is not just a good idea, but a viable, fundable, and manageable enterprise.