Plan for the future, by considering best, worst, and most likely case scenarios in detail.Get financed, by showing lenders or investors how you would use their money to sustainably grow your business.Why create pro forma statements?Ĭreating pro forma statements for future scenarios can help you: They can help you make a business plan, create a financial forecast, and even get funding from potential investors or lenders.ĭifferent but related: you can send clients pro forma invoices to let them know how much their order would be if they placed it today. However, pro forma statements are still extremely useful. Using pro forma statements that aren’t marked as such to misrepresent your business to investors, the IRS, or financial institutions can be penalized by the Securities and Exchange Commission). Pro forma statements don’t need to meet the strictest accounting standards, but must be clearly marked as “pro forma” and can’t be used for things like filing taxes. This is because GAAP compliant reports must be based on historical information. Since pro forma statements deal with potential outcomes, they’re not considered GAAP compliant. As in, “What if my business got a $50,000 loan next year?” Your pro forma statements for that scenario would show what your income, account balances, and cash flow would look like with a $50,000 loan. Pro forma statements look like regular statements, except they’re based on what ifs, not real financial results. There are three major pro forma statements:
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