Pro Forma Financial Statements: What to Know Plus Examples

Pro forma statements of cash flow estimate how much cash inflow and outflow is expected in one or more future periods. Often requested by banks, they may also be prepared as a part of the annual proforma example budgeting or forecast and estimate where cash shortages may occur in order to obtain additional funding. In the case of estimated cash overages, the company can produce a plan for investment.

Free 1 Year Pro Forma Template

Investors and creditors use it to analyze the financial position and health of a company. Management uses it to make informed decisions about events or transactions. And lastly, analysts use pro forma statements to forecast future performance and trends.

Business Proforma

This is well above the company’s daily average trading volume of about 1.4 million shares. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including MarketWatch, Bloomberg, Axios, TechCrunch, Forbes, NerdWallet, GreenBiz, Reuters, and many others. Our goal is to deliver the most understandable and comprehensive explanations of climate and finance topics. They have contributed to top tier financial publications, such as Reuters, Axios, Ag Funder News, Bloomberg, Marketwatch, Yahoo! Finance, and many others.

Preparing a Pro Forma Cash Flow Statement

Over time the assumptions will be replaced with actual data that we will keep up to date. For example, in our sales forecast, we may find that initially, a single salesperson can handle everything but as we scale our business activities we need a massive sales team. Creating different scenarios – conservative, likely, and ambitious can help you understand the range of outcomes and help you set targets and plan for stable, sensible progress. Keep in mind the segregation of costs that you’ll need to plug in – i.e. cost of sales? If you need an industry-specific Pro Forma template, check out ProjectionHub’s premium options. If you work in finance or accounting and want to save time, avoid mistakes, and impress your boss, then you have come to the right place.

• Securities and Exchange Commission (SEC) to be fraudulent and punishable by law.
• It might also tell them if additional financing needs to raised or other lines of credit need to be arranged.
• Additionally, pro forma statements can be misleading if based on unrealistic or overly optimistic assumptions, and users need to scrutinize their underlying premises carefully.
• Accountants and business management use each financial statement to analyze business performance and predict future performance in different ways.
• Bea’s journey through pro forma analysis not only illuminated the path for her boutique’s expansion but also provided a blueprint for managing future growth.
• Stable businesses can generally estimate income tax expense as a percentage of income before taxes.

Even if we’re already collecting money we’ll still need to constantly set forecasts for the future, so the exercise is the same. Our forecasts are just a method for us to populate the income statement with where we think the numbers might land. Startup Founders will always begin creating their financial projections with a simple Google Sheets doc or Excel spreadsheet to try to get an accurate picture of the year ahead. We will derive the amount of “cash and cash equivalents” from the cash flow statement, so keep it empty for now. When it comes to the pro-forma income statement, there are several uses, benefits, and subjective considerations you need to know.

Pro forma example: How to create your financial statements

• This can prompt a warning signal for the stakeholders about the vulnerability of the company’s position if a worst-case scenario occurs for a company.
• Pro forma statements don’t need to meet the strictest accounting standards, but must be clearly marked as “pro forma” and can’t be used for things like filing taxes.
• It is typically used in international trade to provide an estimated cost for goods or services before they are delivered.
• Other individual line items can also be easily forecasted, such as the cost of goods sold, since it can be assumed it will proportionally grow with sales.
• In this way, your management team (or C-suite) has all the information they need to make informed decisions.
• Further, organizations may want to develop their pro forma financial statements while they are doing an annual review of their business plan.
• Sally uses her sales estimate to estimate the dollar amount of inventory at the end of 2021.

Pro forma financial statements, including cash flow statements, provide insights into a company’s anticipated cash inflows and outflows based on specific business scenarios. This allows management to anticipate potential liquidity issues, evaluate financing options, and make informed decisions regarding cash flow management. In essence, pro forma cash flow statements contribute to strategic planning and help minimize financial risks.

Using the Startups.com Template

Once your much-needed pieces of information are in your hands, create a list that details the taxes. While it is not a requirement for pro forma financial statements to meet Generally Accepted Accounting Principles (GAAP), it is generally recommended to adhere to these principles for accuracy and consistency. Bea starts by gathering her sales data, costs, and cash flow statements from the past three years. It’s a bit like detective work, sifting through files and receipts, but it gives her a solid foundation. She notes a steady increase in sales each year and identifies seasonal trends that impact her business.

Issues With Pro-Forma Financial Statements

• If you work in finance or accounting and want to save time, avoid mistakes, and impress your boss, then you have come to the right place.
• You can use a pro forma income statement to review the projected operational business costs against the current fiscal budget.
• After this, use your costs and revenue projections to find out what your future net income might be.
• And just remember – if it all still seems a bit much, Embark is always around to swoop in and save the day.
• They can be used to plan the future by evaluating upcoming cash requirements, credit terms on new debt obligations, and the logistics of entering into new contracts.
• It’s a bit like detective work, sifting through files and receipts, but it gives her a solid foundation.
• Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed.

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