John, we are spinning RESMARK off as its own company and they’ve asked me to be the president.
Congratulations. That’s great.
Thanks. I need some CPA advice. We are meeting with the investors next week and I was hoping you’d help me work up a pro forma.
No.
Well, I mean if you’re really busy. . .
It’s our slow period. I’ve got plenty of time. I just have an aversion to lying.
Ah. . .
And that should have been my first clue. But, hey, someone told me they wanted me to run their company! It was a bit of a heady experience and I didn’t take his advice.
I created the pro forma anyway.
pro forma: financial statements prepared in advance of a planned transaction, such as a new capital investment. The pro forma models the anticipated results, with particular emphasis on the projected cash flows and net revenues.
Essentially, you create it as a way of saying, “Here’s what we think our business will generate.” And since it’s normally going to investors or the board of directors and the person preparing it (me in this case) REALLY wants the money, the pro forma will often show whatever the person preparing it wants it to say.
As a CPA, my brother understood that. He understood that most established businesses have trouble forecasting the next year, let alone 5 years into the future, as our pro forma did.
I didn’t lie. At least not intentionally. I did my research. RESMARK was a reservation system aimed at the rafting industry. We had two competitors, and I’d seen their products. I thought we had a good chance of beating them. I also looked at the rafting business in the US and other countries.
You might be saying, “I’ve been whitewater rafting. Why on earth would a rafting company want a computer based reservation system? Really, how hard is it to write, “Bliss, party of 15, Saturday July 12th 10:00am”?
It’s not.
But, the problem is that despite the size of my family, any rafting company that wanted to stay in business needed a lot more customers than just Rodney and his 13 kids. The rafting season typically starts on Memorial Day and runs through Labor Day, about 100 days. During that 100 days, the busiest companies on the Arkansas River in Colorado will serve 25,000 guests on as many as 10 different routes and attractions. Many of the rafting companies also provided lodging and food. They employed 15-25 guides whose schedules had to be coordinated. It was a huge undertaking. And through it all they had to be able to handle walk in guests, changes and cancellations.
There was a huge market for our product. And I recorded all of that on my pro forma. I estimated that within 5 years we could capture 60% of the market. And by the third or fourth year, I expected we’d be going after international business as well. Costa Rica has some great whitewater rafting. There are companies that will take you rafting in the Andes. There are companies all over the world, and they needed our services too.
So, I put them down too.
I showed how we’d be cash flow positive in three years and we’d be paying back our investors in years four and five.
And it was all a lie. The problem was I believed it. And I’m a pretty good salesman. I convinced our investors of it. As we walked out of the meeting with the investors, Brent, the president of the company we were spinning RESMARK off from pulled me aside.
Rodney, that was fantastic. I more convinced than ever that we made the right choice.
I should have felt horrible. I had just spent 90 minutes lying to him too. Instead, since I believed my own lies, I was elated. I couldn’t wait to get back and let the team know that we had the green light from the investors and we could start changing the world.
It was probably best that I still believed my sales pitch. If I’d had any hint of what was coming, I wouldn’t have been nearly as convincing.
This is the first in a five part series about the birth and death of RESMARK, describing my time as president. Here’s how the rest of the week will look.
– Tuesday: I Want The Jacks Not the Balls, How I assembled our team and managed to not screw up their careers too badly
– Wednesday: Stealing The Show, how we launched the program to incredible good press
– Thursday Being a Management Sandwich, When your customer is also your investor
– Friday: You Can’t Fire Me, I’ll Quit. . .When I’m Good and Ready, know how many bullets are in your gun before you go in
Rodney M Bliss is an author, columnist and IT Consultant. He lives in Pleasant Grove, UT with his lovely wife and thirteen children.
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