This information helps you determine how much financing your business needs and helps outsiders determine whether lending you money or investing in your business is a wise use of their funds.
Without historical financial statements, financial analysis and evaluation would not be possible and management, board members, investors, and customers would be largely in the dark about how well an organization has done.
Pro forma financial statements are similar to historical financial statements in appearance and use, except that they focus on the future instead of the past and are based upon assumptions rather than hard fact.
Historical statements should be real, solid, and scientific, while pro forma statements allow management to exercise a certain amount of creativity and flexibility.
Pro forma statements reflect a dynamic environment in which change is still possible and a variety of different alternatives can be followed. They take the same forms as historical statements, the most common being the income statement, the balance sheet, and the statement of changes in financial position.
Pro forma statements are used for a full range of financial analysis and should be created at the beginning of every financial planning cycle or whenever an organization is considering a step that could have a significant financial impact.
They are often examined when a company is contemplating a merger, new financing debt, stock, institutional subsidy, or external grantcapital investment in plant or other fixed assets, expanding production, launching a new product line, or any other situation with important financial implications.
A university press most often uses proforma statements in connection with its annual operating budget and long-term financial planning process. Budgets and multi-year financial plans usually contain pro forma income statements and balance sheets to summarize financial performance for given time periods and financial conditions for given dates.
The construction of pro forma statements is based upon detailed financial projections and the historical relationships between different income statements and balance sheet accounts.
A set of current financials serve as the foundation on which the pro forma will be built. Alongside pro forma statements, actual statements from previous periods will often be shown for easier comparison and analysis. The current financials are used as a starting point to which adjustments are made to reflect the financial transactions forecast for the time covered by the pro forma.
Before putting together a pro forma income statement, it is important to have complete sales and other income forecasts as well as complete projections of manufacturing costs, royalties, freight-in, title subsidies, salaries and benefits, operating expenses, interest expense, etc.
After completing the pro forma income statement and its supporting forecasts including a cash flow projectionit becomes possible to construct the balance sheet. To do this, forecast activity for the period is added or subtracted to the current account balances.
For instance, to calculate pro forma end-of-the-year balances for accounts receivable, inventory, and fixed assets, the following adjustments are made:Accurately tracking financial data is not only critical for running the day-to-day operations of your small business, but it is also essential when seeking funding from lenders or .
JOHN ROLLINS, YALE UNIVERSITY PRESS The AAUP Business Handbook >> Part Two: Accounting, Budgeting, and Financial Management >> Budgeting and Financial Accounting. In Ralph Estes's Dictionary of Accounting (MIT, Cambridge, , p.
), a pro forma financial statement is defined as "a financial statement prepared on the . It's at the end of your business plan, but the financial plan section is the section that determines whether or not your business idea is viable, and is a key component in determining whether or not your plan is going to be able to attract any investment in your business idea..
Basically, the financial plan section consists of three financial statements.
The financial part of a business plan includes various financial statements that show where your company currently stands and where it expects to be in the near future.
This information helps you. Dec 13, · Expert opinions may vary, but in general there are some standard financial statements and analyses that a business plan should include/5(16). Financial statements are usually required by lenders when a business is seeking a loan or as part of an annual statement released by a corporation at the conclusion of the fiscal year.