A large part of being a business owner is trying to see the future. You should be looking at the financial health of your business and your projected profits, or as VC Strategic calls it, your “Business Runway.” One of the best ways to objectively dissect your financial health for a business plan or forecast is to use pro forma reports to create a statement. This is a financial report for your business that is based on future projections of profits. These statements look just like regular statements but are based on potential trends that your business will face. Pro forma statements can highlight errors or holes in financial planning or help you present to investors.
What Are Pro Forma Financial Statements?
Pro forma statements are financial projections that are presented in traditional accounting formats (income statements, balance sheets, etc.). These are based on forecasts, the anticipation of an influx of capital, or an increase in resources, to assist in financial planning. These statements are used for financial planning purposes, external reporting to interested parties (such as owners, investors, or potential creditors), investment analysis, or to decide financial management.
Pro forma statements have to be based upon reliable and realistic information in order to create an accurate picture of your financial standing. As your company grows, these pro forma statements should be updated monthly and annually. Pro forma statements should be designed to grow with your business; as you change, so do they!
What Can Pro Forma Reports Be Used For?
The most common use for pro forma statements is to help with financial planning, but these statements can also help convince creditors or investors to provide financing for new and experienced companies.
- Develop sales and budget projections
- Create profit and loss projections
- Develop cash flow projections
- Compare finances against industry averages
- Review and propose financial decisions
- Study impact of fixed costs (materials, overhead, etc.)
- Creating external reports for stockholders, creditors, or investors
How to Create a Pro Forma
Pro forma statements seem simple, but creating one from scratch can be a headache. Download our FREE personalized pro forma statement for your business below!Download Your FREE Pro Forma Template Here