We know Inventory gets used to produce the goods or services we’re selling, which means it’s a cost, and we can probably get a better forecast by using some percentage of costs instead. An excellent place to start is by Googling typical percentages for your industry. Then, once you start generating sales, you’ll be able to replace it with something more accurate.

Further, they can represent if your company could run out of money, and how much is necessary to keep it afloat. If your company has a high debt-to-equity ratio, it will show on the https://personal-accounting.org/how-to-create-a-pro-forma-balance-sheet/ balance sheet. Use the balance sheet template below to create your own balance sheet. This pro forma balance sheet can also be used for corporate retail or wholesale businesses.

  • Imagining again that we are accounting for the month of July, it would include any money owed that month to consultants, employees, labor services, or loan payments.
  • With Cultivate Advisors, we can help you navigate your pro forma expenses and leverage them to benefit your business.
  • We won’t even know if everything balances until the cash flow statement is complete.
  • This is known as sensitivity analysis, and basically shows how risky the company’s current position is.
  • Pro forma financial statements are a great way to assess the financial impact of those assumptions.
  • The first thing we’ll do is divide the total loan amount by the length of the repayment period, which gives us the principal we need to pay each year.

Introducing our versatile Pro Forma Balance Sheet Template, compatible with both Excel and Google Sheets. This easy-to-use tool collects your data through simple questions and automatically generates your balance sheet. To ensure a seamless experience, we’ve prepared a step-by-step video guide, eliminating any confusion in creating your balance sheet.

Pro Forma Balance Sheet Template – Excel and Google Sheets

Since pro forma balance sheets are much more flexible than GAAP financial statements, there is also a real opportunity for abuse. For the second example, we will create a format for the pro forma balance sheet. For this, we need historical data from last year, which is 2021 for this article. We will need the “net cash flow” from the cash flow statement to calculate the “cash & cash equivalents” on the balance sheet. Pro forma financial statements are used in a business plan to present the best-case, expected, and worst-case scenarios for a proposed transaction. With pro forma statements, businesses can better make assumptions on what decisions are best for the company, such as labor increases, production increases, or even expansion.

  • Introducing our versatile Pro Forma Balance Sheet Template, compatible with both Excel and Google Sheets.
  • Pro forma financial statements are a common type of forecast that can be useful in these situations.
  • Or a company at
    capacity might need to add assets to continue sales growth.
  • Further, organizations may want to develop their pro forma financial statements while they are doing an annual review of their business plan.

At present, my income is $5,000, and expenses amount to only $1,000, resulting in a net income of $4,000, which is reflected in the retained earnings on the balance sheet. The income statement (also known as the profit & loss or P&L statement) mainly evaluates revenue and operating expenses, along with other metrics related to each like cost of goods sold (COGS) or net income. For example, GAAP statements are required to include non-recurring expenses, which might distort the firm’s true financial position. Pro forma statements, on the other hand, can ignore these expenses, along with several others required by GAAP like unusual or extraordinary expenses. Pro forma statements are financial projections that ask and attempt to answer “what if” questions.

Why Does Your Business Need a Pro Forma Financial Statement?

Pro forma analyses are meant to paint a better picture of what is happening with the company, irrespective of one-time events, but considering the specific industry’s standards. In some respects, this type of analysis is a more accurate depiction of the company’s financial health and outlook. Further, organizations may want to develop their pro forma financial statements while they are doing an annual review of their business plan. Once you’ve created your pro forma income statements, and cast your eyes forward to the future of your business, you can start planning how you’ll spend your money. In this article, we will show you how to create pro forma financial statements in Excel.

Business Insights

Arguably, the statement of cash flow is the most important of the pro forma documents. It’s impossible to predict the future performance of your company, but a pro forma income statement is an asset that can help. A pro forma financial statement is a way to forecast your future earnings over a particular period.

When to Use Pro Forma Financial Statements

In accounting, pro forma total expenses are usually used in a financial forecast that can help with financial modeling. In this article, we’ve covered step-by-step procedures to make a pro forma balance sheet in Excel. Additionally, If you have any questions, comments, or recommendations, kindly leave them in the comment section below. Finally, since a pro forma financial statement often projects a year or two down the line, they can also be used to determine the valuation of a company. You’d do this by determining how that cash could be most efficiently allocated—another use case for pro forma statements. You might compare how a particular piece of equipment would boost the bottom line against a marketing campaign, for example.

It’s helpful for FP&A to provide business leaders with side-by-side comparisons based on different assumptions, better informing the entire decision-making process. If, for instance, management is deciding between two separate proposals or business plans, they can use pro forma statements for each scenario and see which might serve their goals and vision best. The first two items on your pro-forma balance sheet will be your current cash assets and your accounts receivable. The accounts receivable will include any income from this source within the range of your pro-forma sheet, based on your current income and factors such as when accounts receivable bills are usually paid.

Gauge the Impact of Financial Decisions

The Securities and Exchange Commission (SEC), the United States’ regulator of its stock market, requires pro forma statements with any filing, registration, or proxy statement. They have articles governing the preparation of pro forma financial statements for public companies. These are Regulation S-X Article 11, and Regulation S-X 8-05 for smaller companies from 17 CFR 210. Additionally, the SEC may require that pro forma financial statements be submitted when a company is filing for an initial public offering (IPO).

Published On: April 29th, 2022 / Categories: Bookkeeping /