Pro Forma Financial Statements with Templates and Examples
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Pro Forma Financial Statements with Templates and Examples
pro forma financial statements

The Securities and Exchange Commission takes a dim view of this kind of adjusted reporting, and has issued regulations about it in their Regulation G. While they all fall into the same categories—income statement, balance sheet, and cash flow statement—they differ based on the purpose of the financial forecast. If you have only one financial statement to manage your business by—and to use in your business plan—let it be the cash flow pro forma.

  • Using pro forma templates can save you valuable time when creating your own pro forma income statements.
  • To prepare a pro forma statement, you can use a financial statement template or pro forma sample spreadsheets, like these from Smartsheet.
  • I’d advise Russel to hire a part-time assistant to reduce the risk of sinking nearly $60,000 into a new position when he’s not sure he’ll see the increased revenue he’s expecting.
  • In most cases, pro forma documentation is used to present a reasonable representation of what an anticipated occurrence will look like, often a cash expense for shipments.

Be advised that issuing pro forma financial statements to the public can be problematic, especially since the pro forma statements and the GAAP statements can vary so widely. Investors should be cautious when evaluating these types of statements because they present a considerably more favorable picture of the business. Every small business should create a budget, and the budgeted financial results are pro forma statements. An owner may create pro forma reports to assess the potential profitability of a product, or to determine if a business expansion makes financial sense.

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You might be wondering how a pro forma balance sheet differs from a budget, as it’s likely tempting to think about the two as the same thing. Although the two documents share commonalities, they are two distinct financial tools that you can use to benefit your business. To prepare your pro forma income statement, you’ll need to determine your estimated revenue projections. These questions can be answered with the preparation of pro forma financial statements. If outside funds are needed, pro forma statements can help present the expected future results to lenders and other investors. However, management could prepare a set of pro forma statements to remove these extraordinary items and show the results of the company’s normal business operations.

  • In other words, pro forma financial statements start from real financial data.
  • Before acquiring another business, investing in new equipment, or taking on new debt, businesses draft forward-looking pro forma financial statements to understand the effect.
  • So if you figure sales will rise 20 percent next year, you'll enter 120 percent on the top line of the projection.
  • Statistics you can look at include how many people are within a few miles and what percentage meet your demographics.
  • If you don't know how each of the companies defines its pro forma figures, you may be comparing apples to oranges.
  • QuickBooks accounting software allows you to create pro forma statements and make changes as needed.
  • As such, there’s always a possibility that the scenarios projected by your pro forma financial statements are going to be wildly inaccurate.

In creating your pro forma documents, it is advisable to create multiple sets with different scenarios, especially when their purpose is to help make decisions. In this way, your management team (or C-suite) has all the information they need to make informed decisions. If you enable them, they have the best and worst-case scenarios that review the fiscal impact of their decisions and possible ways to mitigate risk. For more information on conducting risk analyses and the free templates to do so, see “All the Risk Assessment Matrix Templates You Need.” As an example, your team might need to decide between the acquisition of two separate businesses.

Pro forma financial statement documents

3330.3If a domestic registrant files a Form 8-K or registration statement for a business combination transaction and the target company is a foreign private issuer, the age of the pro forma information must be determined by reference to S-X 3-12. S-X Article 11 permits the ending date of the periods included for the target company to differ from those of the registrant by up to 93 days and may provide sufficient relief. However, the staff would not permit a registrant to omit an interim pro forma presentation because of different fiscal periods. A corporation may want to see the effects of three possible financing options. Therefore, it prepares a projected balance sheet, income statement, and statement of cash flows for each of the three financing options. These projected financial statements are referred to as pro forma financial statements.

pro forma financial statements

You can address this fact simply with a final paragraph in the compilation reports, and the author may elect to include the reason for the lack of independence. Finally, in each page of the pro forma information, there must be a reference to the compilation report. Use this Excel pro forma invoice template to create your own pro forma invoices.

How to Create a Pro Forma Statement

With the best guesses of future results, managers can prepare budgets for all departments to deal with the expected conditions. Managers can use pro forma statements for a variety of reasons to illustrate the effects of executive decisions or expected changes in business. While it’s helpful to know what a company’s management has planned, it’s important to view these projections with skepticism. Nobody can predict the future, and managers might (even with the best intentions) use overly optimistic assumptions in their pro formas.

  • Understanding this methodology and the decisions behind it will enable accurate comparisons and information to investors.
  • A budget is based on certain assumptions about future expenses and revenues.
  • Further, they can represent if your company could run out of money, and how much is necessary to keep it afloat.
  • The most common pro forma financial statements are projected balance sheets, income statements, and cash flow statements.
  • With Bench, you get a crystal clear image of your financial history so you can focus on planning your future.

Many of the items listed above are part of the GAAP, but not included in pro forma reporting, making it rife for possible deception. This discrepancy is part of the reason the distinction between pro forma and GAAP financial statements is important. Not all these things should be left off, but the decisions of what is left off should be well thought out and explained to potential investors, so they have a clear indication of what they are viewing. Knowing how the pro forma documents are compiled and what is left out is also critical when comparing different pro forma statements.

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