For example, a company may create pro forma statements to assess the financial impact of an economic downturn, allowing for contingency planning and adjustments to operational strategies. By simulating various scenarios, businesses can develop strategies to weather economic uncertainties and position themselves for resilience. By providing projections based on different scenarios, businesses can identify and mitigate potential financial risks. In mergers and acquisitions (M&A), pro forma financial statements are essential for evaluating the financial impact of combining two entities. These statements facilitate a side-by-side comparison of the financials of both companies before and after the merger or acquisition. While pro forma financial statements project the future, there is no guarantee that those predictions are accurate.
- Unexpected changes in the business environment, market conditions, or regulatory landscape can render pro forma projections inaccurate.
- On a pro forma income statement, revenue is calculated based on events that could increase or decrease sales.
- Like a pro forma income statement, a pro forma balance sheet would be created by building a balance sheet for a given date based on projected values.
- Pro forma financial statements are essentially “what-if” generators, giving you the ability to play through different hypothetical scenarios and explore their potential impact on your business.
- In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
All in all, the process of preparing a pro forma balance sheet is much the same as preparing a normal balance sheet. The same holds true for the process of preparing income statements and cash flow statements. It differs when you begin forecasting various line items and calculating how those projections impact your bottom line. One of the most important uses of pro forma reports is related to decision-making and strategic planning efforts. For example, you might create pro forma financial statements to reflect the outcomes of three investment scenarios for your business.
What is a pro forma statement template for Excel?
If interim period balance sheets were submitted, the company should pick up from where they left off. If it is an annual period, the document should also align with the company’s filed GAAP-approved financial Cash vs Accrual Accounting For Non-Profits: Which is Right for Your Organization? statements. A pro forma balance sheet is a comparison of a business’ assets and liabilities. The pro forma part of the balance sheet is a projection that looks ahead, assuming certain things will occur.
- In other words, the different types of pro forma statements are basically the same financials you’re already accustomed to, just using hypothetical data for future periods.
- They’re a way for you to test out situations you think may happen in the future to help you make business decisions.
- Lenders want to feel comfortable that a business has sufficient working capital and liquidity to support its operations.
- For this reason, these reports can be leveraged in several ways, including analyzing risk, projecting investments, and showing expected results before the end of a reporting period.
- In some cases, that’s created tremendous new opportunities organizations can leverage to chalk up some growth.
Small business owners can use pro forma statements to draft forecasted financial statements, budgets, and quotes. If your company must produce an introductory paragraph with its pro forma documents, it should describe the content of your pro forma documents. This means that it should define the transaction, the entities involved, and the periods of time. In this paragraph, you should offer a high-level explanation of the limitations and assumptions the pro forma documents were produced under. For example, if your company recently acquired or dispensed with another company, the assumptions would be the changes in finance expected. The limitations should discuss the challenges of predicting the financial future of a company.
Ultimate pro forma template for Excel
Pro forma financial statements are not computed using GAAP and are often called non-GAAP. GAAP-adjusted statements are uniform financial statements guided by rules of the Financial Accounting Standard Board (FASB). They differ from pro forma statements in that they are not projections, but rather historical reports — therefore, they do not consider things like litigation costs, restructuring charges, and other one-time items.
The difference is that a pro forma statement looks to the future; whereas, your monthly or annual financial statements record historical data. As you follow the steps below and gather more information, you may have to circle back to your original assumptions and modify them as needed. The most common pro forma financial statements are projected balance sheets, income statements, and cash flow statements. Together, the documents help you assess whether your business’s financial health improves, declines, or remains the same following the decision.
Historical with Acquisition Pro Forma Template
A pro forma cash statement makes it easy to see how operating activities would be affected if your cash flows were to increase (or dry up). Before delivering an actual invoice, send a client a pro forma invoice that lists the cost of the goods and services you’re planning to provide. A pro forma invoice isn’t binding; it’s a way to make sure you and the client are on the same page before agreeing to the transaction.
Use this Excel pro forma invoice template to create your own pro forma invoices. To get sign-off from key stakeholders, win investors, and strategically plan, you need to demonstrate that https://simple-accounting.org/how-to-start-your-own-bookkeeping-business-for/ your ideas make financial sense. The statements are presented to the company’s management to help it make a decision on a proposed action based on its potential benefits and costs.