How to Construct Pro Forma Statements
Pro forma financial statements are documents that project a company's upcoming financial activity. They are usually prepared as part of a business plan and submitted to potential sources of financing such as banks and investors. Pro forma statements should be constructed to include the standard financial projections that belong in every business plan: balance sheet, income statement and cash flow projection. In addition, a pro forma should include a list of the assumptions on which it is based.
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Instructions
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Construct a pro forma income statement detailing your expected business earnings and expenses during the period covered by your business plan. For each year, list each category of income, along with the amount of revenue you expect it to generate.
Total your sources of income to calculate your gross pro forma earnings.
Also list each category of expenses that your business typically incurs, such as rent, labor and materials, and add these figures to calculate your gross pro forma expenses.
Subtract your pro forma expenses from your pro forma earnings to figure your net pro forma income.
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Construct a pro forma cash flow projection. Use a spreadsheet and label each column with the months of the year, using the far left column to label your categories of cash and expenditures. Label the top line in the left hand column "Incoming Cash" and list each source of revenue on the top part of the page, including investment funds and loans, and income from business sales. Label the bottom section of the page "Outgoing Cash" and list each type of expense your business incurs, including payroll, loan payments, and interest payments. Enter the amounts you expect your business to earn and take in on a monthly basis in each of the categories you have listed.
Subtract each month's outgoing cash from that month's incoming cash, and use the resulting figure as the available capital at the outset of the following month.
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Construct a pro forma balance sheet. Use the top portion of the page to list all of your projected assets at the end of the period covered by the business plan, such as cash reserves, equipment value, and inventory. Use the bottom portion of the page to list your projected liabilities at the end of the period covered by the business plan, including outstanding debts and accounts payable. Subtract your projected liabilities from your projected assets to calculate your pro forma net worth.
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List the assumptions you have made in constructing your pro forma, such as projections that your sales will increase by ten percent per year during the period covered by the business plan. Include details about how you believe the funds you are requesting in your business plan will help to generate additional income. Be specific, and quantify each of your assumptions.
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References
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