Income statements are prepared monthly, quarterly and annually, but never cover a period longer than a year. When income statements are prepared, management or its accountants extract sales and other income totals along with totals of various expenses from internal accounting records.
But for our purposes, we will be using the first definition. Pro forma is a fancy word for future or projected. If the projections predict a downturn in profitability, then you can make operational changes, such as increasing prices or decreasing costsbefore these projections become reality.
The Best Small Business Ideas Pro forma income statements provide an important benchmark or budget for operating a business throughout the year.
For example, they can determine whether expenses can be expected to run higher in the first quarter of the year than in the second. 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.
More financial statements samples for your business: Sit down with an income statement from the current year. Consider how each item on that statement can or will be changed during the coming year.
You will need to estimate final sales and expenses for the current year to prepare a pro forma income statement for the coming year. Then, in this case, you assume there will be no increase in the cost of each item you are selling, but you will need 10 percent more items to sell in order to achieve your sales goals.
To figure your pro forma gross profit for next year, subtract the pro forma cost of goods sold from the pro forma sales. This is, of course, a very simple example. What you really want to do is take into consideration everything possible to project sales.
Are you going to launch new products? All of these items should be carefully figured into creating sales projections. You then figure your pro forma total expenses by adding pro forma salaries and pro forma other expenses together. Creating a pro forma income statement is a good opportunity to predict your future expenses and costs.
I would give a lot of thought to every single expense line item.
Is there any way you can cut this cost? Is the cost projection realistic? Remember that pro formas are essentially best guesses. You should continually update your projections by recalculating your pro formas using any new and actual financial information you have as a base.
Doing this on a monthly or quarterly basis will help ensure that your projections are as accurate as possible.
Pro Forma Income Statement Example Before creating your own pro forma income statement, take a look at our sample pro forma income statement:Pro Forma Income Statement Blended Value Business Plan The Pro Forma Income Statement is a summary listing of the revenue and expenses generated by a social enterprise activity.
OBRA e-z will generate negative income from July until April while absorbing the expense to upgrade software and jump start its sales and marketing activities. We expect to be generating profits beginning May and every month thereafter. The income and expense statement shows these figures over a period of time, annually in most business plans (e.g., income and expenses for the period January to December ) and projected several years into the future (e.g., to for a three-year projection).
All you need to start a small business: startup information book, business plan and budget templates and tools. An income statement, otherwise known as a profit and loss statement, is a summary of a company’s profit or loss during any one given period of time (such as a month, three months, or one year).
The income statement records all revenues for a business during this given period, as . Customizable lesson plan templates for a math, science, and language arts class.
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