Everything You Need to Know About Pro Forma Balance Sheets

Once standards are established, these financial statements can be used to monitor and control actual performance according to the set standards. This article will explain what a pro forma template is, share our custom pro forma template for Excel, and how monday.com can be used to boost sales forecasting abilities. But to seize those opportunities, it’s essential to constantly look ahead.

how to prepare a pro forma balance sheet

Once we’ve completed this process for each of our long-term liabilities, we just need to add them up for a total. We can then take our total and add it to current liabilities for our total liabilities. Long-term Liabilities are the second section representing longer-term decisions, and much like fixed assets, it’s harder to make blanket statements like we made for the “current” sections.

What are Pro Forma Financial Statements?

Start with one of Excel’s pre-built templates and enter all hypothetical numbers. In financial accounting, a pro forma earnings report excludes unusual or nonrecurring transactions. So, you multiply your historical salaries of $200,000 and your historical expenses how to prepare a pro forma balance sheet of $100,000 by 105 percent each. Your pro forma salaries for next year will be $210,000 and your pro forma expenses will be $105,000. You then figure your pro forma total expenses by adding pro forma salaries and pro forma other expenses together.

how to prepare a pro forma balance sheet

You could deliver to them two sets of pro forma financial statements, and two risk assessment templates to use to discover their best option. According to the SEC, for public companies, a pro forma balance sheet should have the same dates, plus one year from the last submitted balance sheet. 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 statements. Compiled pro forma financial statements can form the basis for calculating financial ratios and financial models, which test assumptions and relationships of your company’s plan.

Pro forma statements vs. budgets

Or how will that proposed transaction of buying new equipment impact you long term? Risk analysis lets you take the future for a test ride, and try out different outcomes. Several third-party sites offer links to pre-built pro forma templates they’ve designed.

Simply import financials and then use the dashboard on the Pro Forma Template to choose various custom scenarios. Pro forma results may contain adjustments to GAAP numbers in order to highlight important aspects of the company’s operating performance. Let’s assume that you expect sales to increase by 10 percent next year. You multiply this year’s sales of $1,000,000 by 110 percent to get $1,100,000.

How to Create a Pro-Forma Balance Sheet

They can determine whether your marketing campaigns need an extra boost during the fall months. All in all, they provide you with invaluable information—the sort of information you need to make the right choices for your business. Planning and budgeting for business changes play crucial roles in operating a successful company. However, balance sheets, income statements, and similar finance-tracking documents focus only on the history of transactions and the current economic status of your company. Though pro forma balance sheets are a useful tool for forecasting and planning, there are some important limitations to consider when using them. Pro forma statements can be used in a variety of situations that involve forecasting future financial states.

  • Adding equity and liabilities together and seeing whether it matches our total assets.
  • However, the information is affected by outstanding estimated days of sales, or the average number of days that payment has not been made by the customers.
  • The most straightforward scenario is when we don’t expect any additional asset purchases.
  • 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.
  • A safe fallback option, if you’re in doubt, is to use a percentage of revenues.

A traditional balance sheet is historical, a tabulation of what has already occurred. Pro forma balance sheets, like the pro forma, is future-looking, often 5 years into the future. As a startup founder, your goal is to plan for your business with a pro forma rather than to review what historically took place. If, for example, you want to calculate the impact on the debt-to-equity https://personal-accounting.org/internal-controls-accounting-audits-consulting/ ratio in future years, you can use the data from pro forma reports. With Bench, you get a crystal clear image of your financial history so you can focus on planning your future. We’re America’s largest bookkeeping service helping thousands of business owners better understand the financial health of their operations so they can keep focused on growth and planning.

Limitations of Pro Forma Statements

The balance sheet will project changes in your business accounts over time. If it’s negative, it means you won’t have enough cash on-hand to run your business, according to your current trajectory. Looking at both best case and worst case scenarios helps you make financial decisions based on challenges you may face in the future. For instance, what happens if your main vendor raises their prices like they did last year?

how to prepare a pro forma balance sheet

If we don’t need to purchase any assets, then we can forecast the same asset values into the future. In the case of our restaurant, we’ll assume the current level of kitchen equipment is sufficient for now. We can then multiply our percentage by future COGS to get the forecast for our balance sheet. The last step we take is multiplying the percentage and forecasted sales to determine the projections for receivables. 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.

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