How to Prepare a Pro Forma Income Statement
An income statement summarizes a business's profitability. As part of a business plan, a pro forma income statement predicts the coming year's expected sales and operating expenses. Revenues (sales) minus operating expenses equals profit or loss. Start-up businesses use pro forma income statements in the business plans they present to lenders, investors or grantors.
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Instructions
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Creating your pro forma income statement
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Bookkeeping from your first year will provide the information for the next year. Gather the information you have collected on the market share you expect to gain (forecasted sales) as well as all of the costs of operating your business. Include in your operating costs expenses for the one-year time frame such as rent, salaries, production costs and utilities.
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Your header makes the time period clear. Write your business name as the header of your statement. Under it write, "Income Statement," and under that write, "For the year ending (date)." Center the three lines of text.
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On the left-hand side write "Revenue" under your header as a subject line. Under the word "Revenue" write "Gross Sales." Under that write "Less sales returns and allowances," and under that write "Net Sales." Notice that this is an equation (gross sales minus sales returns and allowances equals net sales). Create two columns to the right of your text. In the first column, write the dollar amount of your revenues. For gross sales use the dollar amount of your projected sales. If your business will not have any returns and allowances, place a zero in the column on that line. Your net sales amount will be the same as your projected sales amount.
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Skip a line after "Net Sales" and write "Expenses" as your next subject line. In a list format, write your projected expenses. Write the dollar amount for each expense on the same line in the first of the two columns on the right side of the page. Expenses include rent, costs of inventory, costs of office furniture, salaries, advertising, bank fees for the business account, postage, transportation, insurance and utility bills.
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Add all of your expenses to get the total expenses. Write "Total Expenses" below the list. Write this number on the same line in the far-right column. Underline this amount.
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Subtract total expenses from net sales to arrive at your projected net operating profit or loss. Skip a line after "Total Expenses," and write "Net Operating Profit (Loss)." Write the dollar amount on the same line in the far-right column. If you arrive at a negative figure, put the loss amount in parentheses. Double underline the amount.
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If you anticipate no other income, such as the sale of an asset that belongs to the business or interest income, then you are done. If you anticipate either of the two, create a new section called "Other income" under the words "Net operating profit (loss)." In this section include gains or losses from sales of assets or any other income and list the dollar amount in the first column. Add your other income to get your total other income and list the dollar amount in the second column. End by calculating your net income as net operating profit (loss) plus total other income. List "Net Income" on the left-hand side of the form and include the dollar amount in column 2.
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Tips & Warnings
Be sure to deduct expenses from sales, not the other way around.
References
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