But for our purposes, we will be using the first definition. Pro forma is a fancy word for future or projected. If the projections predict a downturn in profitability, then you can make operational changes, such as increasing prices or decreasing costsbefore these projections become reality.
When writing a business plan, properly prepared pro forma financial statements must be included. This financial information provides potential investors a hypothetical snapshot of the future financial health of your business. Investors will not look at a business plan that does not include pro forma financial statements.
Follow these steps to create a pro forma financial statement for your business plan. Items you will need Business plan software Certified public accountant Make educated assumptions of future cash flows, fixed and current assets, and liabilities. This can be done by researching standards for the industry in which your business will operate.
Prepare a Pro Forma Balance Sheet. Include all current and fixed assets, liabilities and shareholders' equity.
To compute shareholders' equity, subtract total liabilities from total assets. Get the Pro Forma Income Statement in order. Include all sales revenues, cost of goods sold, losses, operating expenses, taxes and depreciation of property, plant and equipment, if applicable.
Organize the Statement of Cash Flows. In this document, include net income, any sales or purchases of assets non-current and any stock issues, repayments of bonds or dividend payouts, if applicable.
Create a Pro Forma Financial Statement for monthly periods for the first year; quarterly for the second year; and annually for years three through five. Tips If numbers are not your strong suit, consider hiring a certified public accountant to generate these forms for you.
Be conservative and realistic with your financial assumptions. Prepare three different financial scenarios. Best case optimisticthe expected financial outcomes and worst case pessimistic.
Warning Don't forget to include notes about your financial statements. Investors will want to know the reasoning behind how you arrived at the numbers.
Resources Read more about pro forma financial statements.
About the Author This article was written by a professional writer, copy edited and fact checked through a multi-point auditing system, in efforts to ensure our readers only receive the best information.A complete business plan must also include a set of financial projections for the business.
These forward-looking projected financial statements are often called pro-forma financial statements or. The Board of Directors is responsible for reviewing and approving the RC BUSINESS PLAN.
Business Plan Definition: Pro Forma Financial Statements – Statements that have the format of financial statements (balance sheet, income statement, statement of cash flows). "Pro forma," originates as a Latin phrase which, literally translated, means something like "for the sake of form." It is often used for specific purposes in economics and finance.
Our Ambivalence About the Phrase in Finance The briefest perusal of some dictionary definitions begins to express our. When writing a business plan, properly prepared pro forma financial statements must be included.
This financial information provides potential investors a hypothetical snapshot of the future financial health of your business. Investors will not look at a business plan that does not include pro forma financial. The common objective of a pro forma document is to give a fair idea of the cash outlay for a shipment or an anticipated occurrence.
Pro forma financial statements give an idea of how the actual statement will look if the underlying assumptions hold true. Latin for, according to form or for form's sake. USES OF PRO FORMA STATEMENTS Business Planning.
A company uses pro forma statements in the process of business planning and control.
Because pro forma statements are presented in a standardized, columnar format, management employs them to .