How to Create a Pro-Forma Balance Sheet Froehling Anderson

To illustrate the process of creating pro forma financial statements, meet Sally, the owner of Centerfield Sporting Goods. Centerfield is a small firm that manufactures baseball gloves, and Sally is creating pro forma reports for the 2021 fiscal year. Centerfield is a small firm that manufactures baseball gloves, and Sally is creating pro forma reports for the 2020 fiscal year.

• They're constructed to answer specific questions relevant to one or more of the financial statements.
• You'd also know whether specific redundancies (such as multiple accounting departments) would be needed.
• Smaller total assets means returning cash to our investors (by reducing debt or increasing dividend payout) or parking the cash on our balance sheet (in cash or other short term investments).

As a business partner, he helps his clients get a holistic view of their financial health by slowing down to talk about numbers. Then, he breaks down even complex problems into one or two elements to help them break through their barriers of growth. It's perfect for small businesses seeking a loan or conducting financial reviews.

How to create a pro forma financial statement

This article will show you how to make a pro forma balance sheet in Excel. What if your expenses suddenly increased by a significant margin, or revenue dropped sharply? You'd answer these types of questions with pro forma income statements. Other use cases include budgeting and analyzing mergers and acquisitions. We're https://personal-accounting.org/how-to-create-a-pro-forma-balance-sheet/ going to take you through the steps necessary to create a basic full-year pro forma projection using an income statement, cash flow statement, and balance sheet. However, we’re lobbing another caveat your way – take our walk-throughs with a grain of salt since they’re only a glimpse into the basic pro forma process.

As pro forma forecasts are hypothetical in nature, they can deviate from actual results, sometimes significantly. In this case, the company is projecting the future, based on its knowledge of past sales and expenses and factoring in expected changes. For example, sales might be presented as 15% higher (best case), 5% higher (expected), 20% lower (worst case). If material costs increase sharply, or there is a shortage of labor, the cost of sales will increase. Use this Excel pro forma invoice template to create your own pro forma invoices.

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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. If the accountant is not independent, the report should reflect this. 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.

Mastering Pro Forma Financial Statements: The Three You Need

These financial modeling tools are one of the most important to help a company prepare for any kind of scenario imaginable and map out a future trajectory. Stay ahead of pace by planning and modeling across multiple scenarios and outcomes. As a slight aside, for more in-depth insights on pro forma adjustments as well as some handy best practices and examples, we urge you to look at our Ultimate Guide to Pro Forma Statements. For these walk-throughs, however, we're assuming you've already looked over the different events and scenarios that can prompt pro forma adjustments.

How to Create a Pro Forma Cash Flow Statement

However, like any template, you need to adjust it to suit your needs. They can help you make a business plan, create a financial forecast, and even get funding from potential investors or lenders. When it comes to accounting, pro forma statements are financial reports for your business based on hypothetical scenarios. They’re a way for you to test out situations you think may happen in the future to help you make business decisions. There are strict guidelines when using GAAP while pro forma income statement figures are seen as hypothetical.

Check out our Highly Rated Financial Projection Templates

As a manager for an established business, a pro forma and its statements help you make internal decisions. Let’s say your company is looking to invest in 1 of 3 different machines to produce your final product. Creating a pro forma and including the balance sheet allows you to make side-by-side comparisons of those machines over time and make a strategic decision from that comparison.

Since we used a sales-driven projection, other variables like operating expenses, depreciation & amortization, and interest expense were unaffected by our pro forma adjustments. However, we only feel it right to issue a big ol' caveat before we go any further. As you might've noticed, we've used the word hypothetical several times already. And while pro formas can be enormously helpful in looking at different financial models based on various assumptions, they're still – you guessed it – hypothetical. When it comes to making business decisions, so much relies on numbers. To get sign-off from key stakeholders, win investors, and strategically plan, you need to demonstrate that your ideas make financial sense.