What are Pro Forma Financial statements?
A pro forma business plan is simply another name for a business plan. The term “pro forma” specifically means “based on financial assumptions or projections” which all business plans are. That is, all business plans present a vision of the company’s future using assumptions and projections. “Pro forma” most specifically refers to the financial projections included in your plan, as these are entirely based on future assumptions.
Pro forma financial statements are a type of statement that provides estimates or financial projections for a company. They are often used by businesses to plan for upcoming periods or quarters, assess new opportunities, or track progress against goals.
Why include a Pro Forma Statement in your Business Plan
A pro forma statement is important for your business plan because it gives investors and lenders an idea of your company’s potential financial health. They use your pro forma statements in determining whether to invest in your company or not. Among other things, they consider the likelihood your company will achieve the financial results you forecast, and their expected return on investment (ROI). Your pro forma financial statements also help you to identify and track key financial indicators and metrics over time.
Writing a Pro Forma Business Plan
When writing a pro forma business plan, you will need to include information such as your company’s sales forecasts, expenses, capital expenditure plans, and funding requirements. You should also include a pro forma income statement, balance sheet, and cash flow statement.
Importance of a Pro Forma Income Statement in Business Plans
The pro forma income statement is a crucial financial tool that can be used to assess the viability of your business. It shows a company’s expected revenue and expenses over a period of time and can help you to identify potential problems early on.
Types of Pro Forma Statements in Business Plans
There are several types of pro forma statements, including the income statement, balance sheet, and cash flow statement.
Pro Forma Income Statement
A pro forma income statement is an estimate of your company’s financial performance over a period of time. It shows your expected revenue and expenses and can be used to assess the viability of your business.
Example 5 Year Annual Income Statement
| FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | ||
|---|---|---|---|---|---|---|
| Revenues | ||||||
| Revenues | $342,610 | $374,685 | $409,762 | $448,123 | $490,075 | |
| Total Revenues | $342,610 | $374,685 | $409,762 | $448,123 | $490,075 | |
| Direct Costs | ||||||
| Direct Costs | $9,744 | $10,140 | $10,552 | $10,980 | $11,426 | |
| Total Direct Costs | $9,744 | $10,140 | $10,552 | $10,980 | $11,426 | |
| GROSS PROFIT | $332,865 | $364,544 | $399,209 | $437,142 | $478,649 | |
| GROSS PROFIT % | 97.2% | 97.3% | 97.4% | 97.5% | 97.7% | |
| Other Expenses | ||||||
| Salaries | $58,251 | $60,018 | $61,839 | $63,715 | $65,648 | |
| Marketing Expenses | $0 | $0 | $0 | $0 | $0 | |
| Rent/Utility Expenses | $0 | $0 | $0 | $0 | $0 | |
| Other Expenses | $12,135 | $12,503 | $12,883 | $13,274 | $13,676 | |
| Total Other Expenses | $70,386 | $72,522 | $74,722 | $76,989 | $79,325 | |
| EBITDA | $262,478 | $292,022 | $324,487 | $360,152 | $399,323 | |
| Depreciation | $6,000 | $6,000 | $6,000 | $6,000 | $6,000 | |
| Amortization | $0 | $0 | $0 | $0 | $0 | |
| EBIT | $256,478 | $286,022 | $318,487 | $354,152 | $393,323 | |
| Interest Expense | $8,000 | $8,000 | $8,000 | $8,000 | $8,000 | |
| PRETAX INCOME | $248,478 | $278,022 | $310,487 | $346,152 | $385,323 | |
| Net Operating Loss | $0 | $0 | $0 | $0 | $0 | |
| Use of Net Operating Loss | $0 | $0 | $0 | $0 | $0 | |
| Taxable Income | $248,478 | $278,022 | $310,487 | $346,152 | $385,323 | |
| Income Tax Expense | $86,967 | $97,307 | $108,670 | $121,153 | $134,863 | |
| NET INCOME | $161,511 | $180,714 | $201,816 | $224,999 | $250,460 | |
| Net Profit Margin (%) | 47.1% | 48.2% | 49.3% | 50.2% | 51.1% |
Pro Forma Balance Sheet
A pro forma balance sheet is an estimate of your company’s financial position at a specific point in time. It shows your assets, liabilities, and equity, and can be used to assess your company’s financial health.
Example 5 Year Annual Balance Sheet
| FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | ||
|---|---|---|---|---|---|---|
| ASSETS | ||||||
| Cash | $194,750 | $378,915 | $583,930 | $813,028 | $986,224 | |
| Other Current Assets | $29,516 | $32,279 | $35,301 | $37,343 | $40,839 | |
| Total Current Assets | $224,266 | $411,194 | $619,231 | $850,372 | $1,027,064 | |
| Intangible Assets | $0 | $0 | $0 | $0 | $0 | |
| Amortization | $0 | $0 | $0 | $0 | $0 | |
| Net Intangibles | $0 | $0 | $0 | $0 | $0 | |
| Fixed Assets | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 | |
| Accum Depreciation | $6,000 | $12,000 | $18,000 | $24,000 | $30,000 | |
| Net fixed assets | $24,000 | $18,000 | $12,000 | $6,000 | $0 | |
| Preliminary Exp | $0 | $0 | $0 | $0 | $0 | |
| TOTAL ASSETS | $248,266 | $429,194 | $631,231 | $856,372 | $1,027,064 | |
| LIABILITIES & EQUITY | ||||||
| Current Liabilities | $6,755 | $6,969 | $7,189 | $7,330 | $7,562 | |
| Debt outstanding | $80,000 | $80,000 | $80,000 | $80,000 | $0 | |
| Total Liabilities | $86,755 | $86,969 | $87,189 | $87,330 | $7,562 | |
| Share Capital | $0 | $0 | $0 | $0 | $0 | |
| Retained earnings | $161,511 | $342,225 | $544,042 | $769,041 | $1,019,501 | |
| Total Equity | $161,511 | $342,225 | $544,042 | $769,041 | $1,019,501 | |
| TOTAL LIABILITIES & EQUITY | $248,266 | $429,194 | $631,231 | $856,372 | $1,027,064 |
Pro Forma Cash Flow Statement
A pro forma cash flow statement is an estimate of how your company’s cash flows over a period of time. It shows your expected cash inflows and outflows and can be used to assess your company’s financial health and ensure you never run out of money.
Example 5 Year Annual Cash Flow Statement
| FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | ||
|---|---|---|---|---|---|---|
| CASH FLOW FROM OPERATIONS | ||||||
| Net Income (Loss) | $161,511 | $180,714 | $201,816 | $224,999 | $250,460 | |
| Change in Working Capital | ($22,760) | ($2,549) | ($2,801) | ($1,900) | ($3,264) | |
| Plus Depreciation | $6,000 | $6,000 | $6,000 | $6,000 | $6,000 | |
| Plus Amortization | $0 | $0 | $0 | $0 | $0 | |
| Net Cash Flow from Operations | $144,750 | $184,164 | $205,015 | $229,098 | $253,196 | |
| CASH FLOW FROM INVESTMENTS | ||||||
| Fixed Assets | ($30,000) | $0 | $0 | $0 | $0 | |
| Intangible Assets | $0 | $0 | $0 | $0 | $0 | |
| Net Cash Flow from Investments | ($30,000) | $0 | $0 | $0 | $0 | |
| CASH FLOW FROM FINANCING | ||||||
| Cash from Equity | $0 | $0 | $0 | $0 | $0 | |
| Cash from Debt financing | $80,000 | $0 | $0 | $0 | ($80,000) | |
| Net Cash Flow from Financing | $80,000 | $0 | $0 | $0 | ($80,000) | |
| Net Cash Flow | $194,750 | $184,164 | $205,015 | $229,098 | $173,196 | |
| Cash at Beginning of Period | $0 | $194,750 | $378,915 | $583,930 | $813,028 | |
| $194,750 | $378,915 | $583,930 | $813,028 | $986,224 |
Pro Forma Income Statements for a Business Plan
Pro forma statements for a business plan can take many different forms, but they all typically include information on sales forecasts, expenses, capital expenditure plans, and funding requirements. A pro forma statement that is included in a business plan template should also include financial projections and break-even analysis.
Cash Flow Statements and Pro Forma Income Statements
The main difference between a cash flow statement and a pro forma income statement is that a cash flow statement shows your actual cash inflows and outflows, while a pro forma income statement shows your estimated future financial performance. For example, if you make a sale today, it will be considered revenue in your income statement. But, if you don’t receive payment for that sale for 90 days, that would be reflected in your cash flow statement. A cash flow statement can help you to manage your finances effectively, while a pro forma income statement can help you to assess the viability of your business.
Pro Forma Statements and Budgets
Pro forma statements and budgets are both financial tools that can be used to track the progress of a business. However, there are key differences between them.
A budget is a plan for how you will use your resources to achieve specific goals. It shows your expected income and expenses and can help you to stay on track financially.
A pro forma statement estimates your company’s future financial performance. It shows your expected revenue and expenses and can be used to assess the viability of your business.
Both pro forma statements and budgets can be useful tools for businesses. However, budgets are more focused on short-term planning, while pro forma statements are more concerned with long-term financial planning.
Business Plan Pro Forma Template and Example
The following is an example of a pro forma business plan:
Executive Summary
In this pro forma business plan, we forecasted our company’s sales, expenses, and capital expenditures over the next three years. We also estimated our funding requirements and outlined our plans for growth. Our pro forma income statement shows that we are expected to have positive net income each year of the forecast period. Our pro forma balance sheet shows that we will have a strong financial position, with increasing equity and minimal debt. Lastly, our pro forma statement predicts healthy cash flow throughout the three-year period. We believe that these results demonstrate the viability of our business and its potential for long-term success.
Background
Our company is XYZ, a leading provider of ABC products and services. We have been in business for 10 years, and our products are sold in over 10 countries. We have a strong track record of financial success, and we are now looking to expand our operations into new markets. In order to do this, we need to raise $5 million in funding.
Business Plan Pro Forma
In this section of the business plan, we will provide pro forma statements for our company’s sales, expenses, capital expenditures, funding requirements, and cash flow. These statements will demonstrate the viability of our business and its potential for long-term success.
Sales Forecast
We forecast that our sales will increase by 20% in each year of the forecast period. This growth will be driven by our expansion into new markets, as well as our continued focus on innovation and customer service.
Expense Forecast
We expect our expenses to increase at a slower rate than our sales, due to our economies of scale. We anticipate that our expenses will increase by 15% in Year 1, 10% in Year 2, and 5% in Year 3.
Capital Expenditure Forecast
We forecast that our capital expenditures will increase in line with our sales, at a rate of 20% per year. We plan to invest heavily in research and development, as well as new product launches.
Funding Requirements
We estimate that we will need to raise $5 million in funding in order to expand our operations into new markets. We plan to use this funding to invest in research and development, as well as to cover the costs of marketing and new product launches.
Cash Flow Forecast
Our pro forma cash flow statement predicts healthy cash flow throughout the three-year period. We expect to have positive cash flow in each year of the forecast period.
Conclusion
This pro forma business plan demonstrates the viability of our company and its potential for long-term success. We have a strong track record of financial success, and we are well-positioned to continue growing our business. Our pro forma statements show that we are expected to generate positive net income, and have a strong financial position and healthy cash flow. We believe that this business plan provides a clear roadmap for our company’s future growth.
A pro forma business plan is an important tool for any business owner. By outlining your sales, expenses, and profit, you can get a clear picture of your company’s financial health and make informed decisions about its future. If you’re not sure where to start, we can help. Our team of experts has created a comprehensive business plan template that will guide you through the process of creating your own pro forma business plan. So what are you waiting for? Get started today and ensure your company’s success tomorrow.
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