Pro forma income statements look at revenue and expense projections for future periods. Pro forma income statements are generated by looking at financial performance the year before.comparing it to the current year figures and using the changes to make projections into the future.
Pro forma
income statements can be made without past and current data as well. Figures are estimated for the first year and then assumptions are made about how those numbers will change in future periods. The most important thing with pro forma income statements is that you need to track changes from period to period and then apply those changes to the future.
Estimating Pro Forma Income Statement Numbers
Revenue How much service revenue do you anticipate generating? Are you going to be reselling products and if so, what do you anticipate your sales to be next year? Will there be other potential revenu.coming in i.e. acting as an agent and getting referral fees from ISPs or Web hosts.
Cost of Goods Sold What does it cost you to purchase the items you are reselling?
Budgeted Expenses
Exhibits Sales
seminars Direct-mail expenses Postage Printing costs List rental Copy editor or graphic artist Sales Call expenses Gas Tolls Parking Telesales Phone expenses Display advertisin.commissions IT expenses Training and certification Research and development Subscriptions Extra PCs Administrative expenses Payroll Subcontractors Telecommunications expenses - cell phone, business line Insurance Business, General Liability, Casual
travel and entertainment Office supplies Health insurance Car payments Bank fees Credit cards fees Professional fees accountant, lawyer
Total up your revenue - Subtract your expenses - You have a pro forma income statement. Analyze your numbers against previous years' data or assumptions about the future and create statements for 3 5 years into the future.
Breaking your pro forma income statements down into quarters is a good idea. Obviously, the further out you go out the more subject it will be to change, but it's important to be thinking about the future and putting a plan down on paper.
The Bottom Line on Pro Forma Income Statements
Pro forma income statements are an excellent planning tool. They are based on historical performance and best guess estimates of the future. The numbers on a pro forma income statement won't be perfect but the exercise of analyzing all your sources of revenue and expenses is one that will assist
Your business planning process immensely.
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