Preliminary Pro Forma\n\nBuild a back-of-the-envelope pro forma to decide whether a deal is worth pursuing before spending real money on diligence.

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Hello, and welcome. This is Super Structures General Contractors — a national general contractor headquartered in Powhatan, Virginia — here to help you and your clients build something that lasts. We're glad you're with us, and we look forward to connecting with you.

Today we're tackling Preliminary Pro Forma, and it's worth your full attention. If you remember one thing, make it this: Run a quick pro forma first; if it doesn't pencil on the back of an envelope, walk. Master this and you become the person others come to with the hard questions.

Going Deeper (Intermediate)

A preliminary pro forma is a rough financial model to test whether the deal works before deep spending: total costs (land + soft + hard + financing + contingency) vs. expected revenue (sales or stabilized value) = profit/margin. A quick go/no-go.

Advanced / Pro-Level

Make the back-of-envelope rigorous enough to trust:

• Residual land value — start from target profit and back into what you can pay for the land.
• Test a profit margin on cost (developers often target ~15–20%+) or, for income product, yield-on-cost vs. the market cap rate (the spread is your reward for risk).
• Sensitivity-test the key drivers — sale price, costs, timeline, interest rate — because development is uncertain. The prelim pro forma is iterated as DD sharpens the numbers; never let a thin margin survive a small bad assumption.

Practice Challenge

Your prelim shows a 6% margin on cost, and it assumes everything goes perfectly. Why is that a likely "no"? (Answer: a 6% margin leaves no room for the cost overruns, delays, and price softening that development reliably delivers — a small adverse swing wipes it out; developers want a margin/spread thick enough to survive sensitivity (often 15–20%+), not a best-case sliver.)

In Practice

A developer spends $50k on engineering before realizing the deal never penciled. A back-of-the-envelope pro forma first would have saved it. Run the numbers before you spend.

Common Mistakes to Avoid

• Spending on diligence before a rough pro forma
• Optimistic numbers with no margin
• Ignoring carrying and soft costs

Takeaway: Run a quick pro forma first; if it doesn't pencil on the back of an envelope, walk.