What are some best practices for creating and presenting a pro forma to potential investors or lenders?

1 Know your audience

Different types of investors or lenders may have different expectations and criteria for evaluating your pro forma. For example, equity investors may focus more on the internal rate of return (IRR) and the exit strategy, while debt lenders may look more at the debt service coverage ratio (DSCR) and the loan-to-value (LTV) ratio. Therefore, you need to tailor your pro forma to suit your audience, and highlight the metrics and risks that matter most to them. You also need to research their preferences, track record, and requirements, and align your pro forma with their goals and standards.

3 Use a standard format and software

A pro forma should follow a standard format and software that are widely used and recognized in the real estate industry. This can make your pro forma easier to read, understand, and compare with other projects. A typical pro forma format includes a summary sheet, a cash flow statement, a sensitivity analysis, and an appendix with supporting documents. A common pro forma software is Microsoft Excel, which allows you to create formulas, charts, tables, and scenarios. However, you can also use other specialized software or tools, such as Argus, ProCalc, or RealData, as long as they are compatible and professional.

4 Be realistic and conservative

A pro forma should reflect the reality and uncertainty of the real estate market and the development process. You should avoid being overly optimistic or pessimistic about your project, and instead use realistic and conservative assumptions and projections. For example, you should account for potential delays, contingencies, vacancies, inflation, taxes, fees, and other variables that can affect your project. You should also use appropriate discount rates, growth rates, exit cap rates, and other parameters that reflect the risk and return of your project. You should also test your pro forma with different scenarios and sensitivity analysis, and show how your project can perform under various conditions.

5 Be clear and concise

A pro forma should be clear and concise, and avoid unnecessary or confusing details, jargon, or errors. You should use simple and consistent language, terminology, and units, and explain any acronyms or technical terms. You should also use clear and consistent formatting, layout, and design, and use charts, graphs, tables, and colors to illustrate your data and findings. You should also proofread and edit your pro forma, and check for any mistakes or inconsistencies in your calculations, formulas, references, or presentation. You should also seek feedback and advice from others, such as mentors, peers, or professionals, and revise your pro forma accordingly.

6 Be prepared and confident

A pro forma should be accompanied by a well-prepared and confident presentation, where you can explain and justify your project to your potential investors or lenders. You should rehearse your presentation, and anticipate and address any questions or objections that may arise. You should also have backup materials, such as market reports, feasibility studies, site plans, renderings, or contracts, that can support your pro forma and project. You should also demonstrate your expertise, experience, and passion for your project, and show how you can deliver value and returns to your investors or lenders.